CANADA FX DEBT-C$ notches 5-week high on NAFTA optimism, Wall Street rally

    * Canadian dollar at C$1.2773, or 78.29 U.S. cents
    * Loonie touches its strongest since Feb. 27 at C$1.2758
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, April 4 (Reuters) - The Canadian dollar
strengthened to a five-week high against its U.S. counterpart on
Wednesday, boosted by optimism on a NAFTA trade deal and gains
on Wall Street, as investors grew less fearful of Sino-U.S.
trade tensions.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.3 percent higher at C$1.2773 to the greenback, or
78.29 U.S. cents. The currency touched its strongest level since
Feb. 27 at C$1.2758.
    "Sentiment changed yesterday following positive headlines
regarding the NAFTA negotiations," said Mazen Issa, senior FX
strategist at TD Securities.
    Mexico, Canada and the United States have made good progress
in their bid to rework the North American Free Trade Agreement
but still have work to do, Canadian Foreign Minister Chrystia
Freeland said on Wednesday.             
    Late strength on Wall Street added to support for the
loonie, Issa said. Wall Street stock indexes staged a comeback
to close around 1 percent higher as investors turned their focus
to earnings and away from the trade conflict between the United
States and China, which slammed shares in early trade.     
    Canada's commodity-linked currency tends to be sensitive to
movement in stock markets due to the signal it sends about the
outlook for growth.                 
    The price of oil, one of Canada's major exports, pared
losses as a surprise draw in U.S. crude stockpiles offset trade
    U.S. crude oil futures        settled 0.2 percent lower at
$63.37 a barrel.
    Toronto homes sales tumbled 39.5 percent in March from the
previous year, as tighter mortgage rules and higher borrowing
costs dampened demand, data showed.                 
    The Bank of Canada has raised interest rates three times
since July. But recent data pointing to slower first-quarter
growth than the central bank has expected could forestall
further interest rate hikes.    
    "It may require a bit more patience on the policy front,"
Issa said.
    Canadian trade data for February is due on Thursday and the
March employment report is due on Friday.
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year           
fell 3 Canadian cents to yield 1.815 percent and the 10-year
            declined 22 Canadian cents to yield 2.177 percent.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky and David