CANADA FX DEBT-C$ edges higher with oil prices as greenback dips

    * Canadian dollar at C$1.2280, or 81.43 U.S. cents
    * Bond prices nudge higher across the yield curve
    * Domestic manufacturing sales fall 2.6 percent in July

    TORONTO, Sept 19 (Reuters) - The Canadian dollar
strengthened slightly on Tuesday against its U.S. counterpart,
shrugging off weaker-than-expected domestic manufacturing data
as oil prices rose and the greenback broadly fell.
    At 9:07 a.m. ET (1307 GMT), the Canadian dollar          was
trading at C$1.2280 to the greenback, or 81.43 U.S. cents, up
0.1 percent. The currency traded in a range of C$1.2263 to
    On Monday, the loonie touched its weakest in nearly two
weeks at C$1.2338 after a Bank of Canada policymaker said the
currency's strength will be a factor in future rate decisions.
    Canadian manufacturing sales dropped by 2.6 percent in July,
the most in more than a year, as annual auto plant shutdowns cut
sales of cars and motor vehicle parts, Statistics Canada said.
    Prices of oil, one of Canada's major exports, traded close
to five-month highs after key Middle Eastern producers showed
they continued to comply with output cuts under an OPEC-led deal
that Iraq's oil minister said could be extended or deepened.
    U.S. crude        prices were up 0.78 percent at $50.30 a
    The U.S. dollar        lost ground against a basket of major
currencies ahead of the start of the Federal Reserve's two-day
policy meeting.
    The Fed is expected to announce the start of a plan to trim
its $4.5-trillion portfolio of assets on Wednesday, with
investors also looking for clues on whether U.S. interest rates
could rise again by year-end.
    Canada posted a budget deficit of C$17.8 billion ($14.5
billion) for the 2016-17 fiscal year, the Finance Department
said, below the preliminary deficit of C$21.85 billion reported
in May.             
    Canadian government bond prices edged higher across the
yield curve, with the two-year            up 1.5 Canadian cents
to yield 1.56 percent and the 10-year             rising 3
Canadian cents to yield 2.078 percent.
    Canada's August inflation report and retail sales data for
July are due on Friday.

 (Reporting by Fergal Smith; Editing by Bill Trott)