CANADA FX DEBT-C$ makes subdued gains as oil rallies

(Adds trader comment, updates prices to close)
    * Canadian dollar ends at C$1.2896, or 77.54 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, May 16 (Reuters) - The Canadian dollar made small
gains against its U.S. counterpart on Monday as oil rallied to a
six-month high and as Canadian home sales rose in April to their
highest level ever.
    The commodity-linked currency had a subdued reaction to oil
prices rising amid increasing output disruptions in Nigeria and
after Goldman Sachs said a near-two-year glut in the market had
ended and flipped to a deficit. 
    "The question over this week is will the Canadian dollar
play catch-up to oil or will the trend continue in favor of the
U.S. data and the U.S. dollar," said Blake Jespersen, managing
director for foreign exchange sales at BMO Capital Markets. 
    He said the currency pair could move on Canadian and U.S.
inflation data this week and Wednesday's release of minutes from
the U.S. Federal Reserve's policy-setting committee. The
U.S.-Canada dollar pair has recently traded in a C$1.28-C$1.30
range after the loonie got to as strong as C$1.2461 in early
    Domestic manufacturing, wholesale trade and retail sales
data for March is also due this week. 
    The Canadian dollar ended the session trading at
C$1.2896 to the greenback, or 77.54 U.S. cents, stronger than
Friday's close of C$1.2935, or 77.31 U.S. cents.
    Jespersen said the pair will likely breach resistance at
C$1.30 to hit C$1.32 in the near-term as the Alberta wildfire
hits May GDP data and especially if the Fed's minutes show a
willingness to hike earlier rather than later.     
    The Canadian currency should improve over a
six-to-nine-month timeframe as oil prices rise further and the
Bank of Canada gets closer to hiking its interest rate, he said.
    Sales of existing Canadian homes rose in April from March,
even as activity in the two largest markets, Toronto and
Vancouver, appears to have peaked, a report from the Canadian
Real Estate Association showed.    
    Meanwhile, speculators have increased bullish bets on the
loonie, Commodity Futures Trading Commission data showed. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 3
Canadian cents to yield 0.567 percent and the benchmark 10-year
 declining 33 Canadian cents to yield 1.311 percent. 
    The 10-year yield on Friday hit its lowest point in more
than three weeks at 1.265 percent.

 (Additional reporting by Fergal Smith; Editing by Bernadette
Baum and Diane Craft)