CANADA FX DEBT-C$ firms in thin trading, flash surge in euro dominates

* Canadian dollar at C$1.3445, or 74.38 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Dec 30 (Reuters) - The Canadian dollar strengthened
on Friday against a weaker greenback, which softened against a
basket of major currencies in thin holiday market trading.
    Overseas, a short-lived surge in the euro dominated foreign
exchange markets, with a lack of liquidity and automated
short-covering in the euro exacerbating moves, driving the U.S.
dollar to its lowest since Dec. 8.
    At 10:25 a.m. ET (1525 GMT), the Canadian dollar 
was trading at C$1.3445 to the greenback, or 74.38 U.S. cents,
stronger than the Bank of Canada's official close of C$1.3508,
or 74.03 U.S. cents.
    "It's liquidity, or a lack thereof that plays a big part in
any year-end trading volatility," said Jack Spitz, managing
director of foreign exchange at National Bank Financial.
    "We do expect to see some U.S. dollar selling late morning
and then liquidity will become the bigger factor, especially
after Europe closes."
    The currency traded between C$1.3427 and C$1.3505 during the
session, touching its strongest level since before Christmas.
    The price of oil, a key Canadian export, fell on Friday, but
was still on track for the biggest annual gain since 2009 due to
planned output cuts by major crude producers. U.S. crude 
prices were down 0.15 percent to $53.69 a barrel, while Brent
crude lost 0.25 percent to $56.71. 
    The Canadian dollar, which was outperforming most of its key
currency counterparts, traded in line with market expectations
for the end of the year.
    "Overall, the market is looking for U.S. dollar strength for
the first half of 2017, followed by perhaps some Canadian dollar
strength into the latter part of 2017," said Spitz, pointing to
expectations that the Federal Reserve will likely hike interest
rates in 2017, in contrast to expectations from the Bank of
Canada and elsewhere.
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 2 Canadian
cents to yield 0.749 percent and the benchmark 10-year
 falling 9 Canadian cents to yield 1.728 percent.
    The Canada-U.S. two-year bond spread was -46.1 basis points,
while the 10-year spread was -73.9 basis points.

 (Reporting by Solarina Ho; Editing by Meredith Mazzilli)