CANADA FX DEBT-C$ hits 2-month low vs stronger greenback as oil prices fall

    * Canadian dollar at C$1.3009, or 76.87 U.S. cents
    * Loonie touches its weakest level since March 21 at
    * Bond prices higher across a flatter yield curve
    * 10-year yield touches a near six-week low at 2.241 percent

    TORONTO, May 29 (Reuters) - The Canadian dollar weakened to
a more than two-month low against its U.S. counterpart on
Tuesday as oil prices fell and the greenback broadly rose, while
investors weighed a decision by Canada's government to purchase
a major oil pipeline project.    
    The Canadian government said it will buy Kinder Morgan's
Trans Mountain pipeline expansion for C$4.5 billion. Kinder
Morgan has been frustrated with delays caused by British
Columbia's government, which is concerned about possible oil
    The price of oil, one of Canada's major exports, was
pressured by expectations that Saudi Arabia and Russia could
pump more crude to compensate for a potential supply shortfall.
    U.S. crude        prices were down 1.0 percent at $67.18 a
    The U.S. dollar        rose against a basket of major
currencies after a sell-off in Italy's debt market drove
investors to dump the euro.             
    At 9:09 a.m. EDT (1309 GMT), the Canadian dollar         
was trading 0.1 percent lower at C$1.3009 to the greenback, or
76.87 U.S. cents. The currency touched its weakest level since
March 21 at C$1.3047.
    Losses for the loonie came ahead of a Bank of Canada
interest rate decision on Wednesday. The central bank will
probably hold interest rates steady as indebted consumers and
uncertain trade policy necessitate caution, a Reuters poll
     U.S. President Donald Trump is running out of time to
deliver a revamp of the North American Free Trade Agreement
(NAFTA) he promised for this year, and people involved in the
talks say the crunch is largely of his administration's own
    Canada sends about 75 percent of its exports to the United
States, so its economy could be hurt if NAFTA collapses.
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries, as Italian
political uncertainty bolstered demand for safe-haven assets.
    The 10-year             climbed 37 Canadian cents to yield
2.263 percent. The yield touched its lowest intraday since April
18 at 2.241 percent.

 (Reporting by Fergal Smith; editing by Jonathan Oatis)