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CANADA FX DEBT-C$ weakens as yield advantage vs U.S. moderates

* Canadian dollar at C$1.2148, or 82.32 U.S. cents

* Canada-U.S. 5-year yield spread narrows 1.8 basis points

* Bond prices lower across the yield curve

TORONTO, Sept 12 (Reuters) - The Canadian dollar weakened on Tuesday against its U.S. counterpart, as Canada's yield advantage moderated and the greenback gained broadly. The gap between Canada's 5-year yield and its U.S. equivalent narrowed by 1.8 basis points to a spread of 3.1 basis points. Last week, the spread pushed above parity for the first time in nearly three years after the Bank of Canada raised interest rates for the second time in three months.

The Bank of Canada struck back on Monday against criticism it had not adequately prepared markets for last week's rate hike after a prominent economist took issue with the central bank's lack of communication in the nearly two months leading up to the move.

The U.S. dollar rose against a basket of major

currencies as investors further unwound bearish bets against it following a bounce in Treasury yields and ahead of U.S. inflation data flagged as the next risk event for the market.

At 9:05 a.m. ET (1305 GMT), the Canadian dollar was

trading at C$1.2148 to the greenback, or 82.32 U.S. cents, down 0.3 percent. The currency traded in a range of C$1.2083 to C$1.2156. Still, the loonie has rallied more than 13 percent since early May. It touched its strongest in more than two years on Friday at C$1.2063. Prices of oil, one of Canada's major exports, rose as refinery restarts following Hurricane Harvey offset Hurricane Irma's dampening effect on demand.

U.S. crude prices were up 0.50 percent at $48.31 a

barrel. Canadian government bond prices were lower across the yield

curve, with the two-year price down 0.5 Canadian cent to yield 1.551 percent and the 10-year falling 16

Canadian cents to yield 2.047 percent. Canada's new housing price index for July is due on Thursday and August home sales data is awaited on Friday.

(Reporting by Fergal Smith; Editing by Meredith Mazzilli)