CANADA FX DEBT-C$ nears C$1.40 vs greenback as Fed, oil bite

(Adds trader comment, details; updates prices to close)
    * Canadian dollar ends at C$1.3950, or 71.68 U.S. cents
    * Bond prices rise across maturity curve

    By Alastair Sharp
    TORONTO, Dec 17 (Reuters) - The Canadian dollar's seemingly
relentless weakness against its U.S. counterpart extended
further on Thursday, with the loonie at one point nearing the
C$1.40 level it last breached for a single day in 2004.
    The currency was stung by a broadly higher greenback, after
the Federal Reserve hiked interest rates on Wednesday, and by
further declines in the price of crude oil, a major Canadian
    "Why would you buy the Canadian dollar? Is there anything
good going on in this country?" asked David Bradley, a director
of foreign exchange trading at Scotiabank. 
    "Oil's getting killed, gold's getting killed, there's the
interest rate differential, the Fed hiked yesterday, the Bank of
Canada's not going to," he said, adding that an overpriced
housing market presented additional risks.
    The Canadian dollar closed the session trading at
C$1.3950 to the greenback, or 71.68 U.S. cents, sharply weaker
than the Bank of Canada's official close of C$1.3785, or 72.54
U.S. cents.
    The currency had largely traded between C$1.32 and C$1.34
through November, but has weakened to 11-1/2-year lows since as
crude sunk and stuck below $40 a barrel and the Fed hike
    Canada's prime minister said on Thursday the new Liberal
government recognizes the challenges a cheap currency poses and
will work to ensure the country takes advantage. 
    The currency's strongest level of the session was C$1.3778,
while it hit its weakest level since May 2004 at C$1.3888.
    The number of Americans filing for unemployment benefits
last week fell from a five-month high, suggesting sustained
labor market healing that could support further Fed tightening.
    Canadian government bond prices rose across the maturity
curve, with the two-year up 5.5 Canadian cents to
yield 0.524 percent. The benchmark 10-year jumped 72
Canadian cents to yield 1.432 percent.
    The curve flattened in sympathy with U.S. Treasuries, as the
spread between the two-year and 10-year yields narrowed by 4.8
basis points to 91.4 basis points, indicating outperformance for
longer-dated maturities.
    Canadian inflation data for November is awaited on Friday. A
Reuters poll shows strategists expect a pickup in the consumer
price index to a 1.5 percent pace from a year earlier.
    U.S. crude prices settled down 1.6 percent at $34.95
a barrel, while Brent crude lost 1.4 percent to
    Gold fell 2 percent in its biggest drop in five months,
flirting with a 2010 low.  

 (Additional reporting by Fergal Smith; Editing by Meredith
Mazzilli and Tom Brown)