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CANADA FX DEBT-C$ steadies after hitting 2-month low ahead of rate decision

* Canadian dollar at C$1.2643, or 79.10 U.S. cents

* Loonie touches its lowest since Aug. 18 at C$1.2668

* Bond prices lower across a steeper yield curve

TORONTO, Oct 24 (Reuters) - The Canadian dollar steadied against its U.S. counterpart on Tuesday as oil prices rose, with the currency holding near a two-month low touched earlier in the day as investors braced for a Bank of Canada interest rate decision on Wednesday. At 8:54 a.m. EDT (1254 GMT), the Canadian dollar was nearly unchanged at C$1.2643 to the greenback, or 79.10 U.S. cents. The currency's strongest level of the session was C$1.2622, while it touched its weakest since Aug. 18 at C$1.2668. After back-to-back interest rate increases, the Bank of Canada can stay on the sidelines for longer than first anticipated, with tighter mortgage rules slowing the housing market and uncertainty about the North American Free Trade Agreement clouding the outlook for the economy. Chances of a rate increase this week have sunk to about 25 percent from nearly 50 percent in mid-September, the overnight index swaps market indicates. The central bank's policy rate sits at 1 percent. Prices of oil, one of Canada's major exports, rose after top exporter Saudi Arabia said it was determined to end a supply glut.

The price of U.S. crude was up 0.67 percent at $52.25

a barrel. Bond yields in Europe and North America rose as data from the euro zone's top economies bolstered the case for the European Central Bank to signal a sizeable cut this week to its stimulus measures. Also underpinning bond yields, U.S. stock index futures gained as investors digested earnings from a number of Dow components. Canadian government bond prices were lower across a steeper

yield curve, with the two-year down 4 Canadian cents to yield 1.496 percent and the 10-year falling 28

Canadian cents to yield 2.058 percent. The Canadian government will release its economic and fiscal update later in the day. After a smaller-than-expected budget deficit in the previous fiscal year and recent strong economic growth, analysts expect the government's finances to be in a better position than it projected in its budget earlier this year.

(Reporting by Fergal Smith; Editing by Steve Orlofsky)