CANADA FX DEBT-C$ firms after trade deficit data

* Canadian dollar at C$1.2586 or 79.45 U.S. cents
    * Bond prices lower across the maturity curve

    By Solarina Ho
    TORONTO, April 2 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Thursday as
domestic data showed Canada posted a smaller-than-expected trade
deficit in February and investors positioned themselves ahead of
the Easter long weekend.
    Canada's trade deficit shrank to C$984 million from C$1.48
billion in January, smaller than the C$2 billion shortfall
economists had forecast, as exporters benefited from stabilizing
oil prices. January figures were also revised sharply lower from
an initial C$2.45 billion. 
    South of the border, U.S. jobless claims fell unexpectedly,
boosting the labor market outlook despite evidence of slowing
economic growth, while the trade deficit narrowed 16.9 percent
to $35.4 billion in February. 
    "It was a bit of a wash. We had better numbers from the U.S.
and better numbers from Canada," said Shaun Osborne, chief
currency strategist at TD Securities. "We're also in pre-holiday
mode here."
    Osborne said that the details in the Canadian trade figures
were not as positive, but said foreign exchange traders were
likely not delving too deeply into the nitty gritty details.
    The Canadian dollar was trading at C$1.2586 to the
U.S. dollar, or 79.45 U.S. cents at 9:48 a.m. (1348 GMT),
stronger than Wednesday's finish of C$1.2626, or 79.20 U.S.
cents. It had briefly weakened to a session low of C$1.2655, or
79.02 U.S. cents shortly after the figures were released.
    Osborne noted that overall disappointing economic data out
of the United States recently has put a crimp on U.S.-Canadian
dollar spreads.
    "Narrower spreads is really kryptonite for USD/CAD ...
Spreads have narrowed - that's bad for the U.S. dollar, good for
the Canadian dollar," he said, pointing to easing pressure on
the Bank of Canada to quickly introduce a follow-up interest
rate cut to the 25 basis point surprise cut in January.
    The two year spread stood at -5.1, while the 10 year spread
was -56.0.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 1.5 Canadian
cents to yield 0.497 percent and the benchmark 10-year
 off 17 Canadian cents to yield 1.333 percent.

 (Reporting by Solarina Ho; Editing by Nick Zieminski)