CANADA FX DEBT-C$ gains as easing trade tensions boost rate hike prospects

 (Adds strategist quotes and details on market activity; updates
    * Canadian dollar at C$1.2858, or 77.77 U.S. cents
    * Oil prices fall 0.5 percent
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, March 26 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Monday as reduced
fears of a global trade war bolstered prospects of further Bank
of Canada interest rate hikes over the coming months.
    Stocks on Wall Street rallied following reports the United
States and China are willing to renegotiate tariffs and trade
imbalances. Canada's commodity-linked economy could be hurt if
global trade slowed.             
    "We are seeing a general easing of the trade risk component
in the market place, and that's staring to help the loonie,"
said Colin Cieszynski, chief market strategist at SIA Wealth
    "If you do see the trade risk start to ease in the Canadian
dollar then you will likely go back to speculation as to when
will the Bank of Canada start raising rates again," Cieszynski
    The central bank has raised interest rates three times since
July. Chances of another hike by May have increased to 82
percent from 74 percent before hotter-than-expected domestic
inflation data on Friday, the overnight index swaps market
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.3 percent higher at C$1.2858 to the greenback, or
77.77 U.S. cents. The currency traded in a range of C$1.2841 to
    The loonie has also benefited recently from optimism about a
deal to revamp the North American Free Trade Agreement. It rose
1.6 percent last week, while it touched on Friday its strongest
since March 12 at C$1.2824.
    Speculators have raised bullish bets on the Canadian dollar
for the first time in six weeks, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed on
Friday. As of March 20, net long positions had increased to
24,560 contracts from 19,420 a week earlier.
    The U.S. dollar        fell to a five-week low against a
basket of major currencies on Monday as investors' appetite for
risk improved.                   
    The price of oil, one of Canada's major exports, slipped as
investors cashed in some profits from last week's rally but
concerns about Saudi-Iran tensions kept losses in check.
    U.S. crude oil futures        settled 0.5 percent lower at
$70.12 a barrel.
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year           
fell 5.5 Canadian cents to yield 1.883 percent and the 10-year
            declined 31 Canadian cents to yield 2.233 percent.
    Canada's gross domestic product data for January is due on

 (Reporting by Fergal Smith; 
Editing by Sandra Maler)