CANADA FX DEBT-C$ bounces on oil, North American data; Fed in focus

(Adds closing figures, FX commentary)
    * Canadian dollar at C$1.3171 or 75.92 U.S. cents
    * Bond prices lower across the maturity curve

    By Solarina Ho
    TORONTO, Sept 16 (Reuters) - The Canadian dollar bounced
against a weaker greenback on Wednesday to its strongest level
in about a week, bolstered by further gains in crude prices,
better-than-forecast Canadian manufacturing data and an
unexpected fall in U.S. inflation.
    Factory sales rose for the third straight month in July, up
1.7 percent, as sales rose in the motor vehicle parts and
assembly industries. This was stronger than the 1 percent
increase economists had been forecasting. May and June sales
data were also revised higher. 
    "The data flew under the radar, because everyone is waiting
for the Fed. But I think it's actually pretty decent overall,"
said Greg Moore, senior currency strategist at RBC Capital
Markets, noting it was the latest in a string of respectable
data that bucked fairly weak market expectations.
    "(The data) again seems to have maybe reduced expectations
that the Bank of Canada will in fact cut again before the end of
the year."
    U.S. crude settled nearly 6 percent higher, following an
unexpected decline in U.S. stockpiles. The loonie is typically
sensitive to price moves in oil because of Canada's position as
a major exporter of the commodity. 
    Oil bulls were also encouraged by doubts on whether the
Federal Reserve will raise interest rates on Thursday after U.S.
inflation data showed consumer prices fell in August, the first
decline in seven months. The data sent the greenback lower,
which also helped support the loonie. 
    The Canadian dollar finished at C$1.3171 against
the U.S. dollar, or 75.92 U.S. cents, firmer than the Bank of
Canada's official close of C$1.3247, or 75.49 U.S. cents on
    Going into Thursday, the market will focus squarely on the
Fed, which will issue its latest rate decision at 2:00 p.m.
(1800 GMT). The markets are divided over whether the central
bank will hike its benchmark interest rate or hold steady.
    "I'm surprised the Fed has not been more clear about what
will happen tomorrow and market expectations are about 50/50,"
said Moore.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 2
Canadian cents to yield 0.51 percent and the benchmark 10-year
 falling 1 Canadian cent to yield 1.572 percent.
    The Canada-U.S. two-year bond spread narrowed to -28.0 basis
points, while the 10-year spread narrowed to -70.1 basis points.

 (Reporting by Solarina Ho; Editing by Meredith Mazzilli and
Grant McCool)