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CANADA FX DEBT-C$ rallies as greenback gives back some recent gains

    (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar strengthens 0.6% against greenback
    * Loonie touches strongest level since May 5 at 1.2784
    * Canadian producer prices rise 16.4% year over year in
April
    * 10-year yield hits three-week low at 2.830%

    By Fergal Smith
    TORONTO, May 19 (Reuters) - The Canadian dollar strengthened
to its highest level in two weeks against the U.S. dollar on
Thursday as oil prices rose and investors reduced their exposure
to the U.S. currency.
    The loonie        was trading 0.6% higher at 1.2810 to the
greenback, or 78.06 U.S. cents, after touching its strongest
level since May 5 at 1.2784. On Wednesday, the currency fell
0.6% as Wall Street tumbled.
    The market seems to be moving away from the recent theme of
rising U.S. bond yields driving the greenback higher and
"diversifying risk," said Amo Sahota, director at Klarity FX in
San Francisco.
    The U.S. dollar        fell across the board, extending its
pullback from a two-decade high, as most major currencies
battered by the greenback's advance this year drew some buyers.

    The price of oil, one of Canada's major exports, rebounded
from two days of losses on optimism that easing lockdown
restrictions in China could boost demand. U.S. crude oil futures
       settled 2.4% higher at $112.21 a barrel.
    The Canadian dollar has fallen 1.4% against the greenback
since the start of the year but that is a much smaller decline
than for the other G10 currencies.
    Canada's strong economic performance and the prospect of
another upsized interest rate hike by the Bank of Canada means
that "the loonie looks like good bet," Sahota said.
    Domestic data showed producer prices climbing in April at an
annual rate of 16.4%. With inflation soaring, money markets
expect a second straight half-percentage-point interest rate
hike by the Bank of Canada at its next policy decision on June
1.
    Canadian government bond yields were lower across the curve,
tracking the move in U.S. Treasuries. The 10-year
touched its lowest since April 28 at 2.830% before recovering to
2.885%, down 6.2 basis points on the day.

 (Reporting by Fergal Smith
Editing by Paul Simao and Sandra Maler)

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