CANADA FX DEBT-C$ hits nearly 3-week low on surprise trade deficit

 (Adds analyst quotes and updates prices)
    * Canadian dollar at C$1.3406, or 74.59 U.S. cents
    * Loonie touches its weakest since March 15 at C$1.3455
    * Bond prices turn lower across the yield curve
    * 10-year yield touches a four-month low at 1.545 percent

    By Fergal Smith
    TORONTO, April 4 (Reuters) - The Canadian dollar weakened on
Tuesday to a nearly three-week low against its U.S. counterpart,
pressured by a loss of risk appetite and domestic data showing
an unexpected trade deficit.
    Following three consecutive months of surpluses, February's
C$972 million deficit compared with economists' expectations for
a surplus of C$500 million. It was the greatest fall in exports
in nearly a year, fueled by a decrease in shipments of aircraft
and canola.             
    The drop in exports will embolden the Bank of Canada to play
down recent signs of strength in the domestic economy when it
makes its interest rate decision next week, said Nick Exarhos,
economist at CIBC Capital Markets.
    "They are likely to continue to highlight that we are
starting from a position of economic slack."    
    Risk aversion helped support the yen at the expense of
commodity-linked currencies, such as the Canadian dollar, that
tend to underperform when investors turn less optimistic about
the economic outlook.              
     Appetite for risk has been curtailed by market nerves ahead
of a meeting between U.S. President Donald Trump and Chinese
President Xi Jinping and following Monday's suspected suicide
bombing in St. Petersburg, Russia.
    The Canadian dollar          ended at C$1.3406 to the
greenback, or 74.59 U.S. cents, weaker than Monday's close of
C$1.3386, or 74.70 U.S. cents.
    The currency's strongest level of the session was C$1.3374,
while it touched its weakest since March 15 at C$1.3455.
    Losses for the Canadian dollar came even as prices of oil,
one of Canada's major exports, rose.
    "On a day when oil is rallying you would expect the Canadian
dollar to get a little bit of traction," said Win Thin, global
head of emerging markets strategy at Brown Brothers Harriman. 
    U.S. crude        prices settled up 79 cents at $51.03 a
barrel on expectations of a drawdown in U.S. crude and product
    "There's some talk of some M&A flows that hurt the Canadian
dollar yesterday and that carried over into today," Thin said.
    Last week, ConocoPhillips         agreed to sell oil sands
and western Canadian natural gas assets to Calgary-based Cenovus
Energy Inc          for C$17.7 billion.
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 2 Canadian cents to
yield 0.738 percent and the 10-year             falling 11
Canadian cents to yield 1.58 percent.
    Still, the 10-year yield touched its lowest intraday since
Nov. 30 at 1.545 percent.

 (Reporting by Fergal Smith; Editing by Nick Zieminski and
Sandra Maler)