CANADA FX DEBT-C$ posts 3-month high as rate hike bets jump on jobs data

 (Adds analyst quotes and details on CFTC data and market
activity; updates prices)
    * Canadian dollar at C$1.2412, or 80.57 U.S. cents
    * Loonie touches its strongest since Sept. 27 at C$1.2355
    * Bond prices lower across the yield curve
    * Canada-U.S. 2-year spread narrows by 6.7 basis points

    By Fergal Smith
    TORONTO, Jan 5 (Reuters) - The Canadian dollar strengthened
to a three-month high against its U.S. counterpart on Friday
after stronger-than-expected domestic jobs data boosted
expectations for a Bank of Canada interest rate hike this month.
    The Canadian economy added almost 80,000 jobs for the second
month in a row in December and the jobless rate dipped to a
41-year low of 5.7 percent, Statistics Canada said. Analysts had
expected a modest gain of 1,000 jobs.             
    "The market has got very excited about the potential for a
January rate hike," said Amo Sahota, director at Klarity FX in
San Francisco.
    Chances of a hike at the next rate decision on Jan. 17
nearly doubled after the jobs report to 68 percent, the
overnight index swaps market indicated.           
    In separate data, Canada's trade deficit in November widened
to C$2.54 billion as both exports and imports benefited from
increased activity in the automotive industry.             
    Speculators have cut bullish bets on the Canadian dollar to
the lowest since July, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed. As of Jan.
2, net long positions had fallen to 14,739 contracts from 17,346
a week earlier.
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading at C$1.2412 to the greenback, or 80.57 U.S. cents, up
0.6 percent.
    The currency touched its strongest since Sept. 27 at
    "We have pretty good sentiment in commodities and that has
helped lend itself to some loonie strength over the holiday
period and going into the new year," Sahota said. 
    On Thursday, the price of oil, one of Canada's major
exports, reached its highest since May 2015.             
    Still, analysts in a Reuters poll say that an uncertain
outlook for the North American Free Trade Agreement could weigh
on the loonie over the coming months.                 
    The U.S. dollar        pared gains against a basket of major
currencies on Friday after data showed the U.S. economy created
fewer jobs than expected in December.             
    Canadian government bond prices were lower across the yield 
curve, with the two-year            down 12.5 Canadian cents to
yield 1.774 percent and the 10-year             falling 56
Canadian cents to yield 2.152 percent.
    The two-year yield touched its highest intraday since June
2011 at 1.786 percent, while the gap between the two-year yield
and its U.S. counterpart narrowed by 6.7 basis points to a
spread of -18.6 basis points, its narrowest since Nov. 9.

 (Reporting by Fergal Smith; Editing by Andrew Hay and Tom