CANADA FX DEBT-C$ steadies after hitting 2-month low ahead of rate decision

    * Canadian dollar at C$1.2643, or 79.10 U.S. cents
    * Loonie touches its lowest since Aug. 18 at C$1.2668
    * Bond prices lower across a steeper yield curve

    TORONTO, Oct 24 (Reuters) - The Canadian dollar steadied
against its U.S. counterpart on Tuesday as oil prices rose, with
the currency holding near a two-month low touched earlier in the
day as investors braced for a Bank of Canada interest rate
decision on Wednesday.    
    At 8:54 a.m. EDT (1254 GMT), the Canadian dollar         
was nearly unchanged at C$1.2643 to the greenback, or 79.10 U.S.
    The currency's strongest level of the session was C$1.2622,
while it touched its weakest since Aug. 18 at C$1.2668.
    After back-to-back interest rate increases, the Bank of
Canada can stay on the sidelines for longer than first
anticipated, with tighter mortgage rules slowing the housing
market and uncertainty about the North American Free Trade
Agreement clouding the outlook for the economy.             
    Chances of a rate increase this week have sunk to about 25
percent from nearly 50 percent in mid-September, the overnight
index swaps market indicates.           
    The central bank's policy rate sits at 1 percent.
    Prices of oil, one of Canada's major exports, rose after top
exporter Saudi Arabia said it was determined to end a supply
    The price of U.S. crude        was up 0.67 percent at $52.25
a barrel.
    Bond yields in Europe and North America rose as data from
the euro zone's top economies bolstered the case for the
European Central Bank to signal a sizeable cut this week to its
stimulus measures.             
    Also underpinning bond yields, U.S. stock index futures
gained as investors digested earnings from a number of Dow
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year            down 4 Canadian cents
to yield 1.496 percent and the 10-year             falling 28
Canadian cents to yield 2.058 percent.
    The Canadian government will release its economic and fiscal
update later in the day. After a smaller-than-expected budget
deficit in the previous fiscal year and recent strong economic
growth, analysts expect the government's finances to be in a
better position than it projected in its budget earlier this

 (Reporting by Fergal Smith; Editing by Steve Orlofsky)