CANADA FX DEBT-C$ hits 2-1/2-month low as Trump mulls bilateral trade talks

 (Adds strategist quotes and details on activity; updates
    * Canadian dollar at C$1.2977, or 77.06 U.S. cents
    * Loonie touches its weakest since March 21 at C$1.3068
    * Price of U.S. oil rises 1.2 percent
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, June 5 (Reuters) - The Canadian dollar weakened to
a 2-1/2-month low against its U.S. counterpart on Tuesday,
pressured by the prospect of U.S. President Donald Trump moving
toward bilateral discussions on trade with Canada and Mexico.
    Trump may seek separate talks in a bid to get individual
trade deals with the two countries, White House economic adviser
Larry Kudlow said.             
    "It is almost like starting from scratch," said Mazen Issa,
senior fx strategist at TD Securities. "More uncertainty is not
good for businesses."
    The Bank of Canada has worried that trade uncertainty is
holding back business investment. Canada sends about 75 percent
of its exports to the United States so its economy could be hurt
if a deal on NAFTA is not reached.
    The European Union does not expect any breakthrough on steel
and aluminium tariffs imposed by the United States on the EU and
Canada at talks of G7 leaders in Canada later this week, a
senior EU official said.             
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.4 percent lower at C$1.2977 to the greenback, or 77.06
U.S. cents. It touched its weakest since March 21 at C$1.3068.  
    Canadian labor productivity fell by 0.3 percent in the first
quarter, reflecting a deceleration in business output from the
previous quarter, while hours worked accelerated, Statistics
Canada said.                 
    U.S. crude oil futures        settled 1.2 percent higher at
$65.22 a barrel, reversing its earlier losses.
    Oil, one of Canada's major exports, had been pressured by a
report that the U.S. government had asked Saudi Arabia and other
major exporters to increase oil output.             
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The two-year           
rose 3.5 Canadian cents to yield 1.917 percent and the 10-year
            climbed 23 Canadian cents to yield 2.251 percent.
    Canada's trade report for April is due on Wednesday and the
May employment report is due on Friday.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
David Gregorio)