CANADA FX DEBT-C$ strengthens as Poloz reinforces rate hike expectations

    * Canadian dollar at C$1.2955, or 77.19 U.S. cents
    * Bond prices lower across a steeper yield curve
    * Two-year yield touches its highest since October 2014

    TORONTO, July 4 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Tuesday after comments by Bank
of Canada Governor Stephen Poloz supported the view the central
bank will raise interest rates as early as next week.
     Inflation in Canada should be well into an uptrend by the
first half of 2018, Poloz told German newspaper Handelsblatt,
adding that policy normalization must begin before price growth
hits its target.             
    Top Bank of Canada officials' recent assertions that a pair
of 2015 interest rate cuts did their job in cushioning the
economy from collapsing oil prices appear to be paving the way
for a tightening move as soon as July 12.              
    Chances of a rate hike next week are better than 50 percent,
data from the overnight index swaps market shows.           
    At 9:42 a.m. ET (1342 GMT), the Canadian dollar          was
trading at C$1.2955 to the greenback, or 77.19 U.S. cents, up
0.4 percent.
    The currency traded in a range of $1.2955 to C$1.3018.
    On Friday, the loonie touched its strongest intraday in nine
months at C$1.2947. It was helped by data showing Canada's
economy grew for a sixth consecutive month in April, while a
central bank survey of business sentiment showed firms were
feeling more upbeat.             
    Adding to support for the Canadian dollar, prices of oil,
one of Canada's major exports, edged higher.
    U.S. crude        prices were up 0.15 percent at $47.14 a
barrel, extending recent gains on tentative signs a persistent
rise in U.S. crude production may be slowing.                   
    Speculators have cut bearish bets on the Canadian dollar for
a fifth straight week, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed on Friday.
Canadian dollar net short positions tumbled to 49,495 contracts
as of June 27 from 82,881 a week earlier.                 
    Canadian government bond prices were lower across a steeper
yield curve after reopening following the Canada Day holiday on
Monday. They were pressured by Poloz's hawkish comments and by
U.S. manufacturing data on Monday that boosted expectations the
Federal Reserve would raise interest rates again this year.
    The two-year            price fell 5.5 Canadian cents to
yield 1.131 percent and the 10-year             declined 54
Canadian cents to yield 1.825 percent.
    The two-year yield touched its highest intraday since
October 2014 at 1.139 percent.
    Canada's trade data for May is due on Thursday and the June
employment report is due on Friday.                 

 (Reporting by Fergal Smith; Editing by Chris Reese)