CANADA FX DEBT-C$ notches 3-week high as job gains boost rate hike bets

 (Adds dealer quotes and details on activity, updates prices)
    * Canadian dollar at C$1.3107, or 76.30 U.S. cents
    * Canada adds 31,800 jobs in June
    * Price of U.S. oil rises 1.2 percent
    * Bond prices higher across a flatter yield curve

    By Fergal Smith
    TORONTO, July 6 (Reuters) - The Canadian dollar strengthened
to a three-week high against its U.S. counterpart on Friday as
oil prices rose and data showing a stronger-than-expected rise
in domestic jobs raised expectations for a Bank of Canada
interest rate hike next week.
    The Canadian economy added 31,800 jobs in June, more than
the 24,000 gain that analysts had predicted.             
    Chances of a Bank of Canada interest rate increase at the
July 11 announcement climbed to more than 90 percent from 88
percent before the data, the overnight index swaps market
    "The market's view is that the bank will raise rates," said
Blake Jespersen, managing director, foreign exchange sales at
BMO Capital Markets. "You've also had oil prices steadily
climbing higher ... so that's also helping the Canadian dollar."
    U.S. crude oil futures        settled 1.2 percent higher at
$73.80 a barrel. Oil is one of Canada's major exports.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.2 percent higher at C$1.3107 to the greenback, or
76.30 U.S. cents. The currency touched its strongest since June
14 at C$1.3077.
    Gains for the loonie came despite the United States and
China slapping tit-for-tat duties on $34 billion worth of each
other's goods.             
    "The big question for us remains will we get any escalation
in the trade war between the U.S. and China over the weekend and
early next week that could blow things apart," said Paul-Andre
Pinsonnault, senior fixed income economist at National Bank
    Canada runs a current account deficit so its economy could
be hurt if the flow of trade or capital slows. The country has
its own trade feud with the United States and is also in
slow-moving talks to revamp the North American Free Trade
    The loonie, which rose 0.2 percent for the week, will climb
over the coming year, a Reuters poll showed. But forecasters are
less bullish than they were a month ago as escalating trade
uncertainty competes with expected Bank of Canada rate hikes.
    Separately, Statscan said Canada's trade deficit in May grew
to C$2.77 billion from C$1.86 billion in April.             
    The U.S. dollar        fell after data showed the U.S.
economy created more jobs than expected in June, but a closely
watched inflation gauge rose less than forecast.             
    Canadian government bond prices were higher across a flatter
yield curve, with the 10-year             rising 18 Canadian
cents to yield 2.126 percent.

 (Additional reporting by Danya Hajjaji; Editing by Bernadette
Baum and Tom Brown)