CANADA FX DEBT-C$ retreats as oil price slumps to 7-month low

* Canadian dollar at C$1.3263, or 75.40 U.S. cents

* U.S. crude prices fall 2.56 percent

* Bond prices higher across the yield curve

TORONTO, June 20 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday, erasing recent gains as a drop in oil prices offset stronger-than-expected domestic wholesale trade data. Prices of oil, one of Canada's major exports, fell to seven-month lows on news of boosted supply by several key

producers. U.S. crude prices shed 2.56 percent to

$43.07 a barrel. Wholesale trade rose 1.0 percent in April from March, led by higher sales in the machinery, equipment and supplies subsector, Statistics Canada said. Analysts surveyed by Reuters had forecast a 0.5 percent increase. "Another day, another positive for the Canadian outlook ... April (gross domestic product) is shaping up to remain in positive territory after an extremely strong March," said Nick Exarhos, economist at CIBC Capital Markets in a research note.

At 9:03 a.m. ET (1303 GMT), the Canadian dollar was

trading at C$1.3263 against the greenback, or 75.40 U.S. cents, down 0.3 percent. The loonie traded in a range of C$1.3205 to C$1.3284. Last week, it touched its strongest in 3-1/2 months at C$1.3165. The strength of recent data has triggered a more hawkish stance from the Bank of Canada. The central bank's top two officials said last week that rate cuts put in place in 2015 had largely done their work, and the bank would assess whether rates need to be kept at near-record lows. Chances of a rate hike as early as next month have climbed to 35 percent, from nearly zero earlier this month, while a rate hike has been fully priced in by December, data from the overnight index swaps market shows.

The U.S. dollar reached a three-week high against a

basket of major currencies, boosted by comments from the U.S. Federal Reserve bolstering expectations that it would keep raising interest rates. Canadian government bond prices were higher across the yield

curve, with the two-year up 2.5 Canadian cents to yield 0.929 percent and the 10-year rising 9

Canadian cents to yield 1.532 percent. Canada's 2-year yield fell 1.9 basis points further below its U.S. equivalent to a spread of -44.0 basis points. On Monday it had touched its smallest gap in nearly four months at -42.1 basis points. Canadian retail sales data for April is due out on Thursday, while inflation data for May is due on Friday.

(Reporting by Fergal Smith; Editing by Bernadette Baum)