CANADA FX DEBT-C$ beats G10 peers as investors assess BoC's move to the sidelines

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Canadian dollar strengthens 0.4% against the greenback

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Touches its strongest since Nov. 18 at 1.3304

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Price of U.S. oil settles 1.1% higher

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Canadian bond yields rise across curve

(Adds dealer quotes and details throughout; updates prices)

By Fergal Smith

TORONTO, Jan 26 (Reuters) -

The Canadian dollar strengthened to its highest level in more than two months against its U.S. counterpart on Thursday as oil prices rose and investors assessed the Bank of Canada's move to signal a pause in its tightening campaign.

The loonie was trading 0.4% higher at 1.3335 to the greenback, or 74.99 U.S. cents, the largest gain among G10 currencies. It touched its strongest since Nov. 18 at 1.3304.

"I think the market is trying to digest what has evolved yesterday with the Bank of Canada, saying that they're are on hold," said Marty Halpin, head of global markets at HSBC Bank Canada.

The BoC on Wednesday raised its key interest rate to 4.5% and said it would take time to see how effective rate hikes had been in dampening excess demand and hot labor markets that have fueled inflation.

Traders have since raised bets that the bank would shift to rate cuts as soon as October but

Governor Tiff Macklem

pushed back against that notion, saying he was not even considering easing.

"The Bank of Canada has a ways to go until they get inflation to where they need it to be," Halpin said. "I don't think the interest rate cuts are going to come as quickly as what the market has priced in."

Wall Street shares

rose and the price of

oil

, one of Canada's exports, settled 1.1% higher at $81.01 a barrel, supported by data showing the

U.S. economy

expanded at a faster-than-expected pace in the fourth quarter.

Canadian bond yields were higher across the curve, tracking the move in U.S. Treasuries.

The 2-year rose 4.1 basis points to 3.624%. Still, it was trading roughly 88 basis points below the BoC policy rate and 56 basis points below the equivalent U.S. rate. (Reporting by Fergal Smith Editing by Bernadette Baum and David Gregorio)