CANADA FX DEBT-C$ climbs as factory sales gain impresses investors

 (Adds strategists' quotes and details on market activity;
updates prices)
    * Canadian dollar at C$1.2794, or 78.16 U.S. cents
    * Canadian factory sales rise 1.4 percent in March
    * Bond prices lower across much of the yield curve

    By Fergal Smith
    TORONTO, May 16 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday, boosted by higher
stock prices and domestic data showing better-than-expected
growth in manufacturing sales.
    Canadian factory sales rose 1.4 percent in March, surpassing
the 1.2 percent gain expected by economists, and February's
increase was upwardly revised to 2.7 percent from a previously
reported 1.9 percent, Statistics Canada said.             
    "The market likes the headline nominal gain and also the
revision higher," said Bipan Rai, North America Head, FX
Strategy at CIBC Capital Markets.
    Wall Street rose, with the small cap Russell 2000 index
       hitting a record. The commodity-linked Canadian dollar is
sensitive to movement in equity markets due to the signal that
stocks sends about prospects for global growth.             
    Other commodity-linked currencies, such as the Australian
dollar        and the New Zealand dollar       , also climbed.
    U.S. crude oil futures        settled 0.3 percent higher at
$71.49 a barrel. Oil is one of Canada's major exports.      
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.6 percent higher at C$1.2794 to the greenback, or
78.16 U.S. cents. The currency traded in a range of C$1.2777 to
    Uncertainty about North American Free Trade Agreement
renegotiations is one of the reasons the Bank of Canada has kept
interest rates low, because concern about U.S. trade policy is
dragging down business investment, Deputy Governor Lawrence
Schembri said.
    The United States is pushing for a deal in negotiations on a
revised NAFTA trade deal, the White House said, but Canadian and
Mexican officials were not due in Washington for talks before a
Thursday deadline.             
    "The market is thinking, over the next little while
something is going to be stitched together," said Mark Chandler,
head of Canadian fixed income and currency strategy at RBC
Capital Markets.
    Canada sends about 75 percent of its exports to the United
States, so its economy could benefit if a NAFTA deal is reached.
    On a matter unrelated to NAFTA, Finance Minister Bill
Morneau said on Wednesday Canada's government was prepared to
indemnify Kinder Morgan Canada Ltd's          proposed Trans
Mountain pipeline expansion against unnecessary delays that are
politically motivated.             
    Canadian government bond prices were lower across much of
the yield curve, with the two-year            down 3.5 Canadian
cents to yield 2.057 percent and the 10-year             falling
14 Canadian cents to yield 2.501 percent.
    On Tuesday, the 10-year yield touched its highest intraday
level since April 2014 at 2.521 percent.

 (Reporting by Fergal Smith; editing by Jonathan Oatis and Tom