CANADA FX DEBT-C$ nears 3-week high on NAFTA trade deal bullishness

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    * Canadian dollar rises 0.4 percent against greenback
    * Loonie touches strongest since Aug. 30 at 1.2911
    * Canadian bond prices fall across the yield curve
    * 10-year yield nears a four-month high at 2.431 percent

    By Fergal Smith
    TORONTO, Sept 19 (Reuters) - The Canadian dollar
strengthened to its highest in nearly three weeks against its
U.S. counterpart on Wednesday, as investors grew optimistic that
a deal to renew the NAFTA trade pact would be reached before an
Oct. 1 deadline.    
    Canadian Prime Minister Justin Trudeau said he wanted to see
flexibility from the United States if the two sides are to reach
a deal on the North American Free Trade Agreement, which
Washington insists must be finished by the end of the month.
    "I think the market is cautiously optimistic that a deal
will get done next week, so you are seeing the Canadian dollar
reflect that optimism," said Blake Jespersen, managing director,
foreign exchange sales at BMO Capital Markets.
    "But I think there is still a risk that this continues to be
extended into potentially even October and I think that would
lead to another Canadian dollar sell-off."
    Canada sends about 75 percent of its exports to the United
States and runs a current account deficit, so its economy could
be hurt if a deal on NAFTA is not reached, or by an escalating
trade dispute between the United States and China.
    Bets that the U.S.-China trade spat would inflict less
damage than feared helped boost global equities for a second
straight day.             
    At 3:26 p.m. (1926 GMT), the Canadian dollar          was
trading 0.4 percent higher at 1.2923 to the greenback, or 77.38
U.S. cents. The currency touched its strongest since Aug. 30 at
    The near three-week high for the Canadian dollar came after
stronger-than-expected domestic manufacturing data on Tuesday
supported prospects for another Bank of Canada interest rate
hike next month.           
    Also supportive of the loonie was recent strength in the
price of oil, one of Canada's major exports.
    U.S. crude oil futures        settled 1.8 percent higher at
$71.12 a barrel, bolstered by a fifth weekly crude inventory
drawdown and strong domestic gasoline demand, amid ongoing
supply concerns over U.S. sanctions on Iran that come into force
in November.             
    Canadian government bond prices were lower across a steeper
yield curve in sympathy with U.S. Treasuries, with the 10-year
            falling 27 Canadian cents to yield 2.420 percent.
The 10-year yield touched its highest intraday since May 24 at
2.431 percent.
    Canada's inflation report for August and July retail sales
data are due on Friday.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and Tom