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CANADA FX DEBT-C$ strengthens ahead of Fed decision as oil prices climb

* Canadian dollar at C$1.2257, or 81.59 U.S. cents

* Bond prices little changed across the yield curve

* Oil prices climb more than 1 percent

TORONTO, Sept 20 (Reuters) - The Canadian dollar strengthened on Wednesday against its U.S. counterpart, boosted decision by the U.S. Federal Reserve. Prices of oil, one of Canada's major exports, were on course for their largest third-quarter gain in 13 years after the Iraqi oil minister said that OPEC and its partners were considering extending or deepening output cuts.

U.S. crude prices were up 1.07 percent to $50.01 a

barrel.

Against a basket of currencies, the U.S. dollar edged

towards 2-1/2-year lows hit earlier this month as investors waited to see whether the Fed this afternoon would signal tighter monetary policy or hold off because of tepid inflation data.

At 9:28 a.m. ET (1328 GMT), the Canadian dollar was

trading at C$1.2257 to the greenback, or 81.59 U.S. cents, up 0.3 percent. The currency traded in a range of C$1.2236 to C$1.2302. On Monday, the loonie touched its weakest in nearly two weeks at C$1.2338 after a Bank of Canada policymaker said the currency's strength will be a factor in future interest rate decisions. Canadian government bond prices were little changed across

the yield curve, with the two-year flat to yield 1.558 percent and the 10-year rising 1 Canadian cent

to yield 2.093 percent. The 10-year yield on Monday touched a nearly three-year high at 2.119 percent. Canada's August inflation report and retail sales data for July are due on Friday.

(Reporting by Fergal Smith; Editing by W Simon)