CANADA FX DEBT-C$ slides as NAFTA talks weigh

    * Canadian dollar at C$1.2676, or 78.89 U.S. cents
    * Bond prices higher across a flatter yield curve
    * Canada's 10-year yield hits a 1-month low at 2.21 percent

 (Adds comment, bylines, updates prices)
    By Fergal Smith and Gertrude Chavez-Dreyfuss
    TORONTO/NEW YORK, Feb 26 (Reuters) - The Canadian dollar
weakened against the greenback on Monday as investors weighed
talks to revamp a North American trade pact.
    The Canadian currency, also called the loonie, has fallen in
six of the last seven sessions, as the U.S. dollar staged a
rally that propelled it from a three-year low hit more than a
week ago.
    Mexico and Canada aim to finish reworking less contentious
chapters of the North American Free Trade Agreement with the
United States in new talks that began on Sunday, hoping to clear
the path for a breakthrough on the toughest issues before
upcoming elections.             
    Canada sends about 75 percent of its exports to the United
    Karl Schamotta, director of global product and market
strategy at Cambridge Global Payments in Toronto, believes that
in acknowledging the risk posed by a potential collapse of the
NAFTA agreement, and setting out a game plan for dealing with
the potential consequences, Canadian Finance Minister Bill
Morneau could act to reduce the risk premium currently attached
to the Canadian dollar.
    At 3:39 p.m. EST (2039 GMT), the Canadian dollar         
was trading 0.2 percent lower at C$1.2676 to the greenback, or
78.89 U.S. cents.
    The currency pair traded in a range of C$1.2615 to C$1.2682.
On Thursday, the Canadian dollar touched its weakest in two
    Speculators cut bullish bets on the Canadian dollar for the
second straight week, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed on Friday. As
of Feb. 20, net long positions had fallen to 23,127 contracts
from 32,529 a week earlier.
    Figures for Canada's fourth-quarter economic growth will be
released on Friday, with analysts expecting the annualized rate
to come in below the Bank of Canada's 2.5 percent forecast.
    "Friday’s December gross domestic product number could be
more meaningful, setting the stage for another adjustment in
interest rate expectations," said Cambridge's Schamotta.
    The U.S. dollar        was little changed against a basket
of major currencies ahead of Federal Reserve Chairman Jerome
Powell's first congressional testimony on Tuesday.             
    Canadian government bond prices were mixed across the yield
curve, with the two-year            down 2 Canadian cents to
yield 1.794 percent and the 10-year             flat to yield
2.247 percent.
    The Canadian government will release its latest federal
budget on Tuesday. Markets will get updated forecasts on the
size of the deficit and will look for any planned return to

 (Reporting by Fergal Smith in Toronto and Gertrude
Chavez-Dreyfuss in New York; Editing by David Gregorio and James