CANADA FX DEBT-C$ strengthens as strong jobs data builds case for rate hikes

    * Canadian dollar at C$1.3461, or 74.29 U.S. cents
    * Loonie touches 1-week low at C$1.3545 before jobs data
    * Bond prices lower across the yield curve
    * 10-year yield hits highest since May 26 at 1.459 pct

    By Fergal Smith
    TORONTO, June 9 (Reuters) - The Canadian dollar strengthened
on Friday against its U.S. counterpart, recovering from an
earlier 1-week low as strong domestic jobs data supported the
view that the Bank of Canada will raise interest rates earlier
than previously thought.
    Canada's job growth accelerated in May at its fastest pace
in eight months, Statistics Canada said. Employers added 54,500
jobs, handily topping economists' forecast for a gain of 11,000.
    "It is just another piece of information that suggests that
the Bank of Canada could be tightening maybe a little bit
earlier than markets are pricing," said Andrew Kelvin, senior
rates strategist at TD Securities.
    Chances of an interest rate increase this year rose to
nearly 30 percent from 22 percent before the jobs report, data
from the overnight index swaps market showed.           
    On Thursday, Bank of Canada Governor Poloz said he is
comforted by recent signs of economic strength even as the
central bank warned that rising consumer debt levels and an
unbalanced housing market have raised household vulnerabilities.
    At 9:20 a.m. ET (1320 GMT), the Canadian dollar          was
trading at C$1.3461 to the greenback, or 74.29 U.S. cents, up
0.3 percent.
    The currency's strongest level of the session was C$1.3454,
while it touched its weakest since June 2 at C$1.3545.
    In other domestic data, industrial capacity rose to its
highest level since 2007 in the first quarter, lifted by the
manufacturing and construction sectors, data from Statistics
Canada showed.                     
     Prices of oil, one of Canada's major exports, steadied
after steep falls earlier in the week under pressure from
widespread evidence of a fuel glut despite efforts led by
Organization of the Petroleum Exporting Countries to tighten the
    U.S. crude        prices were up 0.26 percent at $45.76 a
    The U.S. dollar        climbed against a basket of major
currencies, helped by a bounce in bond yields as risk aversion
ebbed following the testimony of former FBI director James
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 6.5 Canadian cents to
yield 0.75 percent and the benchmark 10-year             falling
33 Canadian cents to yield 1.454 percent.
    The 10-year yield touched its highest since May 26 at 1.459
percent, while the gap between it and the U.S. 10-year yield
narrowed 1.3 basis points to a spread of -76.4 basis points as
Canadian bonds underperformed.

 (Editing by Bernadette Baum)