CANADA FX DEBT-C$ strengthens to 2-1/2-week high as oil prices jump

 (Adds economist quote and background details and updates
    * Canadian dollar at C$1.3645, or 73.29 U.S. cents
    * Loonie hits strongest level since April 27 at C$1.3601
    * Bond prices lower across yield curve

    By Fergal Smith
    TORONTO, May 15 (Reuters) - The Canadian dollar strengthened
on Monday to its highest level against its U.S. counterpart in
more than two weeks as the price of oil, one of Canada's major
exports, jumped after major producers took a step toward
extending a supply-cut deal.
    U.S. crude        prices settled up $1.01 at $48.85 a barrel
after top exporter Saudi Arabia and Russia said supply cuts led
by the Organization of the Petroleum Exporting needed to last
into 2018, longer than originally agreed.      
    The Canadian dollar's historically close link to oil has
become stronger in recent weeks. The three-month rolling
correlation between the loonie and oil reached its highest since
September at 0.75, indicating that the currency and the
commodity move mostly in the same direction.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading up 0.5 percent at C$1.3645 per greenback, or 73.29 U.S.
cents, according to Reuters data. It touched its strongest level
since April 27 at C$1.3601.
    The loonie moved further away from a recent 14-month low at
C$1.3793. It had been pressured recently by depressed oil
prices, a more uncertain trade outlook with the United States
and investor worries about how the troubles of alternative
lender Home Capital Group could affect the country's real estate
    But analysts expect the Canadian dollar will weather a
"perfect storm" to regain some ground over the coming months, a
Reuters poll showed earlier this month, as a pickup in the
domestic economy could prod the Bank of Canada to raise interest
rates by next year.             
    "It looks like Canada is set to have strong enough growth in
2017 that the Bank of Canada could hike if not at the beginning
of next year, then even before the end of this year," said
William Adams, senior international economist at PNC Financial
Services Group.
    Bank of Canada Governor Stephen Poloz told the Globe and
Mail newspaper over the weekend that the problems at Home
Capital Group were contained, but that the sharp rise in
Canadian home prices and its possible impact on the financial
system is a primary concern for the central bank.             
    Resales of Canadian homes fell 1.7 percent in April from
record highs in March as new listings spiked, the Canadian Real
Estate Association said in a report that suggested a
long-awaited slowdown in housing has begun.             
    Canadian government bond prices were lower across the yield
curve, with the 10-year             falling 16 Canadian cents to
yield 1.592 percent.

 (Reporting by Fergal Smith, editing by G Crosse)