CANADA FX DEBT-C$ weakens to near 1-week low ahead of business survey

    * Canadian dollar at C$1.2535, or 79.78 U.S. cents
    * Loonie touches its weakest since Oct. 10 at C$1.2545
    * Bond prices higher across the yield curve
    * Canada-U.S. 2-year spread narrows by 4.3 basis points

    TORONTO, Oct 16 (Reuters) - The Canadian dollar weakened to
a nearly one-week low against its U.S. counterpart on Monday
ahead of the release of a key business survey, while investors
weighed doubts about a deal being reached to renew NAFTA.
    Negotiators at talks to modernize the North American Free
Trade Agreement are running out of time and look set to extend
the remaining rounds in a bid to meet an end-year deadline as
tensions rise, three sources familiar with the matter said on
    Canada sends about 75 percent of its exports to the United
States and its economy could suffer if the agreement is not
    The Bank of Canada, which raised interest rates in July and
September, will release its business outlook report at 10:30
a.m. ET (1430 GMT). A pick-up in business spending intentions
could raise the possibility the central bank will hike rates for
a third time before the year is out.
    At 9:19 a.m. ET (1319 GMT), the Canadian dollar          was
trading at C$1.2535 to the greenback, or 79.78 U.S. cents, down
0.6 percent.
    The currency's strongest level of the session was C$1.2471,
while it touched its weakest since Oct. 10 at C$1.2545.
    The loonie lost ground even as prices of oil, one of
Canada's major exports, climbed.
    U.S. crude        prices were up 1.52 percent at $52.23 a
barrel as fighting escalated in Iraq's oil-rich city of Kirkuk.
    Canadian growth will slow down in the second half of 2017 as
the economy starts to approach full capacity in the wake of a
prolonged oil shock, Bank of Canada Governor Stephen Poloz said
on Saturday.             
    Still, data on Monday showing a rise in lending to Canadian
small businesses in August, suggesting that corporate spending
could help sustain broader economic growth down the line.
    Speculators have raised bullish bets on the loonie to the
highest since November 2012, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed on
    As of Oct. 10, Canadian dollar net long positions had edged
up to 76,392 contracts from 75,128 a week earlier.             
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 5.5 Canadian cents to
yield 1.514 percent and the 10-year             rising 17
Canadian cents to yield 2.019 percent.
    The gap between the 2-year yield and its U.S. counterpart
narrowed by 4.3 basis points to a spread just above parity.     

 (Reporting by Fergal Smith; Editing by Bernadette Baum)