CANADA FX DEBT-Canadian dollar strengthens as oil rallies

    * Canadian dollar at C$1.3333, or 75 U.S. cents
    * Bond prices higher across the yield curve

 (Updates prices, adds analyst comment)
    TORONTO/OTTAWA, March 29 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Wednesday as the
price of oil, one of Canada's major exports, rose for the second
day in a row.
    U.S. crude inventories grew less than expected, while Libyan
supply disruptions, and expectations that an output cut led by
the Organization of Petroleum Exporting Countries would be
extended all helped send oil prices higher.      
    U.S. crude        futures settled up $1.14, or 2.4 percent,
at $49.51 a barrel.
    The loonie was able to climb against the greenback even as
the U.S. dollar was stronger against a basket of major
currencies        after a Reuters report that European Central
Bank policymakers were wary of making any changes to their
policy message in April pressured the euro.       
    "We're seeing oil prices really rally after the
better-than-expected inventories report this morning so that's
been the main driver of the Canadian dollar," said Scott Smith,
chief market strategist at Viewpoint Investment Partners in
    The Canadian dollar          settled at C$1.3333 to the
greenback, or 75 U.S. cents, stronger than Tuesday's close of
C$1.3383, or 74.72 U.S. cents.
    The currency's strongest level of the session was C$1.3323,
while its weakest level was C$1.3401. The day's strength marked
a bounce-back from Tuesday when it touched C$1.3415, its weakest
in nearly two weeks.
    The steady bias on Wednesday for the currency came one day
after the Bank of Canada stuck to its cautious tone. The
nation's economy would tip into recession if interest rates were
raised today, said Stephen Poloz, the central bank's governor.
    Still, economists expect Canada's gross domestic product to
show 0.3 percent growth for January, which could set the stage
for a stronger performance in the first quarter than initially
    The January GDP data is due for release on Friday.
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 3 Canadian cents to yield
0.725 percent and the 10-year             rising 29 Canadian
cents to yield 1.593 percent.
    On Tuesday, the two-year yield hit its lowest in nearly
seven weeks at 0.719 percent.

 (Reporting by Fergal Smith in Toronto and Leah Schnurr in
Ottawa; Editing by James Dalgleish)