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CANADA FX DEBT-C$ hits 2-week low as potential U.S. tax reform weighs

* Canadian dollar at C$1.2893, or 77.56 U.S. cents * Loonie touches its weakest since Dec. 1 at C$1.2899 * Bond prices lower across a steeper yield curve

TORONTO, Dec 19 (Reuters) - The Canadian dollar dipped to a two-week low against its U.S. counterpart despite trading in a narrow range on Tuesday, while bond yields climbed as investors weighed the potential impact of expected U.S. tax reform.

At 9:24 a.m. ET (1424 GMT), the Canadian dollar was

trading at C$1.2893 to the greenback, or 77.56 U.S. cents, down 0.2 percent. The currency's strongest level of the session was C$1.2852, while it touched its weakest since Dec. 1 at C$1.2899.

The U.S. dollar declined against a basket of major

currencies for a second consecutive day as investors took the view that a major U.S. tax overhaul would be unlikely to boost the economy significantly. But losses for the greenback were pared after data showed that U.S. domestic home construction unexpectedly rose in November to a 13-month peak. Prices of oil, one of Canada's major exports, were supported expectations that U.S. crude inventories probably fell for a fifth week.

U.S. crude prices were up 0.4 percent at $57.38 a

barrel. Lending to Canadian small businesses slowed in October as the manufacturing and agriculture sectors pulled back with the broader economy expected to show a cooler pace of growth in the second half of 2017, data showed. The loonie had fluctuated last week on remarks by Bank of Canada Governor Stephen Poloz and weaker-than-expected domestic manufacturing data. Wholesale trade data for October is due on Wednesday while Canada's inflation report for November and October retail sales data are expected on Thursday, and gross domestic product data for October is due on Friday. Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries.

The two-year fell 2.5 Canadian cents to yield 1.584 percent and the 10-year declined 40 Canadian

cents to yield 1.908 percent.

(Reporting by Fergal Smith; Editing by Phil Berlowitz)