CANADA FX DEBT-C$ hits near three-week low as oil losses extend

    * Canadian dollar at C$1.2989, or 76.99 U.S. cents
    * Loonie touches its weakest since May 8 at C$1.2996
    * The price of U.S. oil falls 2.1 percent
    * Bond prices higher across the yield curve

    TORONTO, May 28 (Reuters) - The Canadian dollar weakened to
a nearly three-week low against its U.S. counterpart on Monday
as oil prices fell and ahead of a Bank of Canada interest rate
decision on Wednesday.
    At 9:02 a.m. EDT (1302 GMT), the Canadian dollar         
was trading 0.1 percent lower at C$1.2989 to the greenback, or
76.99 U.S. cents. The currency touched its weakest since May 8
at C$1.2996.
    On Friday, the loonie had its biggest slide in more than two
months as the price of oil, one of Canada's major exports,
    Oil extended its decline on Monday as Saudi Arabia and
Russia said they may increase supplies while U.S. production
gains show no signs of slowing. U.S. crude        prices were
down 2.1 percent at $66.45 a barrel.             
    The U.S. dollar        gained against a basket of major
currencies after Italy's president set the country on a path to
fresh elections, pressuring the euro       . Foreign exchange
trading volumes were low due to holidays in Britain and the
United States.                 
    The Bank of Canada will probably hold interest rates steady
this week as uncertain trade policy and indebted consumers
necessitate caution, but firmer price and wage inflation will
prompt two increases in the second half of 2018, a Reuters poll
    Also this week, investors will weigh prospects for expansion
of the Trans Mountain pipeline. As a hard deadline set by Kinder
Morgan Canada Ltd          for scrapping the expansion looms,
there is growing doubt among investors, contractors and
government officials about reaching a deal to save the C$7.4
billion project.             
    Speculators have boosted bearish bets on the Canadian
dollar, data from the U.S. Commodity Futures Trading Commission
and Reuters calculations showed on Friday. As of May 22, net
short positions had increased to 26,212 contracts from 23,656 a
week earlier.
    Canadian government bond prices were higher across the yield
curve in sympathy with German Bunds. The two-year           
rose 6.5 Canadian cents to yield 1.963 percent and the 10-year
            climbed 57 Canadian cents to yield 2.347 percent.   

 (Reporting by Fergal Smith
Editing by James Dalgleish)