CANADA FX DEBT-C$ hits 3-week low as China's trade talk worries investors

    * Canadian dollar falls 0.3% against the greenback
    * Loonie hits weakest level since April 25 at 1.3514
    * For the week, the Canadian dollar declines 0.7%
    * Gap between 2- and 10-year yields hits narrowest since

    TORONTO, May 17 (Reuters) - The Canadian dollar weakened to
a three-week low against its U.S. counterpart on Friday and was
on track for its biggest weekly decline since March, as
investors became more worried about the trade dispute between
the United States and China.
    Global stocks fell as China said the U.S. must show
sincerity if it is to hold meaningful trade talks. It follows a
potentially devastating blow by the U.S. to Chinese tech giant
    Canada runs a current account deficit and exports many
commodities, including oil, so its economy could be hurt by a
slowdown in the global flow of capital or trade.    
    The price of oil was supported by a host of supply cuts and
concern of further disruption to Middle East shipments as
tensions rise. U.S. crude oil futures        were up 0.5% at
$63.17 a barrel.             
    At 9:11 a.m. (1311 GMT), the Canadian dollar          was
trading 0.3% lower at 1.3501 to the greenback, or 74.07 U.S.
cents. The currency, which was down 0.7% for the week, touched
its weakest level since April 25 at 1.3514.
    On Thursday, the Bank of Canada said the overall risk to the
Canadian financial system was slightly higher than in June 2018
and expressed concern about the increasing threat posed by
fragile corporate debt funding.             
    Canadian government bond prices were higher across a flatter
yield curve, with the two-year            up 4 Canadian cents to
yield 1.566% and the 10-year             rising 33 Canadian
cents to yield 1.644%.
    The gap between the 2- and 10-year yields narrowed by 1.4
basis points to a spread of 7.8 basis points in favor of the
longer-dated bond, its narrowest gap since March 29.
    Canada's interest rate markets are due to close early ahead
of the Victoria Day holiday on Monday.      

 (Reporting by Fergal Smith
Editing by Nick Zieminski)