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CANADA FX DEBT-C$ recovers from four-week low as oil prices rise

* Canadian dollar at C$1.2461, or 80.25 U.S. cents

* Loonie touches its weakest since Aug. 31 at $1.2519

* Bond prices mixed across a steeper yield curve

* Canada-U.S. two-year spread narrows by 3.3 basis points

TORONTO, Sept 28 (Reuters) - The Canadian dollar steadied on Thursday against its U.S. counterpart, recovering from an earlier four-week low, as oil prices rose and the greenback pared some recent gains. The loonie plunged on Wednesday by the most since January, after Bank of Canada Governor Stephen Poloz dampened expectations for further interest rate hikes this year.

The central bank has hiked rates twice in the last three months. Its policy rate sits at 1 percent. The price of oil, one of Canada's major exports, was boosted region's vote in favor of independence in a referendum.

U.S. crude prices were up 0.96 percent at $52.64 a

barrel.

The U.S. dollar pulled back after hitting a one-month

high on Thursday against a basket of currencies as U.S. Treasury yields rose, prompting investors to unwind some of their dollar shorts.

At 9:50 a.m. ET (1350 GMT), the Canadian dollar was

trading at C$1.2461 to the greenback, or 80.25 U.S. cents, up 0.1 percent. The currency's strongest level of the session was C$1.2458, while it touched its weakest since Aug. 31 at $1.2519. Canadian average weekly earnings of non-farm payroll employees rose at an annual rate of 1.8 percent in July, data from Statistics Canada showed. Data on Friday is expected to show that the economy grew by 0.1 percent for the same month, which would be consistent with moderation in the pace of growth after it accelerated in the first half of the year. Canadian government bond prices were mixed across a steeper

yield curve. The two-year rose 8.5 Canadian cents to yield 1.539 percent and the 10-year dipped 2

Canadian cents to yield 2.137 percent. The gap between Canada's two-year yield and its U.S. equivalent narrowed by 3.3 basis points to +6.8 basis points. Earlier this month the spread reached its widest since January 2015 at 24.8 basis points.

(Reporting by Fergal Smith; Editing by Susan Thomas)