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CANADA FX DEBT-C$ edges higher ahead of BoC interest rate decision

* Canadian dollar at C$1.2677, or 78.88 U.S. cents

* Bank of Canada rate decision due at 10 a.m. ET (1500 GMT)

* Bond prices higher across a flatter yield curve

TORONTO, Dec 6 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Monday, but traded in a narrow range as investors awaited an interest rate decision from the Bank of Canada. The central bank is expected to keep its benchmark interest rate at 1 percent when it announces its decision at 10 a.m. ET (1500 GMT). Analysts will parse the statement for how the central bank characterizes the economy, particularly after the recent acceleration in jobs and wage growth. The Bank of Canada raised rates in July and September for the first time in seven years but has since turned more cautious on the outlook for the economy due to a number of uncertainties, including renegotiation of the North American Free Trade Agreement.

At 9:07 a.m. ET (1407 GMT), the Canadian dollar was

trading at C$1.2677 to the greenback, or 78.88 U.S. cents, up 0.1 percent. The currency traded in a range of C$1.2657 to C$1.2707. On Tuesday, it touched its strongest in six weeks at C$1.2624. The loonie firmed despite lower prices of oil, one of Canada's major exports.

U.S. crude prices were down 1.34 percent at $56.85 a

barrel after a surprise rise in U.S. inventories of refined products that suggested demand may be flagging.

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

major currencies as optimism about progress on tax reform legislation offset concerns about a possible U.S. government shutdown. The labor productivity of Canadian businesses fell by 0.6 percent in the third quarter, the second consecutive decline, as the number of hours worked grew faster than business output.

Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year rose 0.5 of a Canadian cent to yield 1.534 percent

and the 10-year gained 8 Canadian cents to yield

1.884 percent. The gap between the 2- and 10-year yields narrowed by 0.6 of a basis point to a spread of 35 basis points, its narrowest since January 2008.

(Reporting by Fergal Smith; Editing by Susan Thomas)