CANADA FX DEBT-C$ holds on to Tuesday's rally as oil prices climb

    * Canadian dollar at C$1.3059, or 76.58 U.S. cents
    * Loonie matches Tuesday's strongest level since Sept. 3    
    * Price of U.S. oil rises 1.1 percent
    * Bond prices move higher across the yield curve

    TORONTO, Sept 12 (Reuters) - The Canadian dollar edged
higher against the greenback on Wednesday, holding on to gains
from the day before as oil prices rose and domestic data showed
that industries operated at a lower-than-expected percentage of
production capacity.
    The loonie was boosted on Tuesday by increased optimism that
a deal to renew the North American Free Trade Agreement would be
     Canada is ready to offer the United States limited access
to the Canadian dairy market as a concession in negotiations to
rework NAFTA, two Canadian sources with direct knowledge of
Ottawa's negotiating strategy said on Tuesday.             
    Canadian industries ran at 85.5 percent of capacity in the
second quarter, up from a downwardly revised 83.7 percent in the
first quarter, Statistics Canada said. Economists surveyed by
Reuters had forecast a rate of 86.9 percent.             
    The price of oil, one of Canada's major exports, extended
Tuesday's rally after a drop in U.S. crude inventories and as
the prospect of the loss of Iranian supply added to concerns
over the delicate balance between consumption and production.
    The price of U.S. crude        was up 1.1 percent at $70.04
a barrel.
    At 9:17 a.m. (1317 GMT), the Canadian dollar          was
trading 0.1 percent higher at C$1.3059 to the greenback, or
76.58 U.S. cents.
    The currency's weakest level of the session was C$1.3079,
while it matched Tuesday's strongest level since Sept. 3 of
    Fresh sparring between Washington and Beijing over trade
kept up pressure on world markets.             
    Canada runs a current account deficit, so its economy could
be hurt if the global flow of trade or capital slows.
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The 10-year            
rose 18 Canadian cents to yield 2.318 percent.
    On Tuesday, the 10-year yield touched its highest intraday
in more than one month at 2.340 percent.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky)