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CANADA FX DEBT-C$ tracks oil higher as investors weigh NAFTA prospects

* Canadian dollar at C$1.2785, or 78.22 U.S. cents

* Loonie touches its weakest since Nov. 2 at C$1.2837

* U.S. crude prices settle 0.7 percent higher

* Bond prices higher across a flatter yield curve

TORONTO, Nov 21 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday, with the currency recovering from an earlier three-week low as oil prices climbed and investors weighed prospects for the North American Free Trade Agreement (NAFTA). Prices of oil, one of Canada's major exports, rose as traders looked ahead to a meeting next week at which major crude exporters are expected to extend production cuts.

U.S. crude prices settled 0.7 percent higher at

$56.83 a barrel. Traders also keyed off NAFTA headlines, said David Bradley, director of foreign exchange trading at Scotiabank. Activity was lighter than usual ahead of the U.S. Thanksgiving holiday on Thursday, Bradley added. Mexico formally proposed that the NAFTA trade deal allow for a structured review of the accord every 5 years, instead of terminating the deal automatically if it is not renegotiated, as the United States has demanded, three Mexican officials said.

The loonie has been pressured recently by concern that an uncertain outlook for NAFTA will stall Bank of Canada interest rate hikes.

At 4 p.m. EDT (2100 GMT), the Canadian dollar was

up 0.3 percent at C$1.2785 to the greenback, or 78.22 U.S. cents. The currency's strongest level of the session was C$1.2749, while it touched its weakest since Nov. 2 at C$1.2837. The loonie gained ground on Tuesday despite weaker-than-expected domestic data. Canadian wholesale trade fell by 1.2 percent in September from August. Analysts had forecast a 0.3 percent increase.

Investors were awaiting a speech by Federal Reserve Chair Janet Yellen later on Tuesday. Minutes from the Fed's November meeting will be released on Wednesday. Canadian government bond prices were higher across a flatter

yield curve, with the two-year up 1.5 Canadian cents to yield 1.465 percent and the 10-year rising 29

Canadian cents to yield 1.920 percent. Canadian retail sales data for September is due on Thursday.

(Reporting by Fergal Smith; Editing by Meredith Mazzilli and Sandra Maler)