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CANADA FX DEBT-C$ hits 5-month low as U.S. tax bill approval boosts greenback

(Adds analyst quotes and details on tax bill approval; updates prices)

* Canadian dollar at C$1.2871, or 77.69 U.S. cents

* Loonie touches its weakest since July 12 at C$1.2920

* Bond prices lower across a steeper yield curve

* 10-year yield touches highest since Oct. 25 at 1.762 percent

TORONTO, Dec 19 (Reuters) - The Canadian dollar hit a five-month low against its U.S. counterpart on Tuesday before paring some losses, while bond yields climbed as investors weighed the potential impact of an expected U.S. tax overhaul.

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

trading at C$1.2871 to the greenback, or 77.69 U.S. cents, down 0.1 percent. The currency's strongest level of the session was C$1.2852, while it touched its weakest since July 12 at C$1.2920. Rising U.S. bond yields in anticipation of tax legislation helped boost the greenback, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets. "We are already in thin holiday markets, so just a little bit of emotion, a little bit of flow can take things a long ways." The Republican-controlled U.S. House of Representatives approved a sweeping, debt-financed tax bill, sending it to the Senate, where lawmakers were due to take up the package later in the evening.

The U.S. dollar also benefited from data showing that

U.S. domestic home construction rose unexpectedly in November to a 13-month peak. It gained ground against the safe-haven Japanese yen but slipped against the euro. 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 futures settled 0.5 percent higher at

$57.46 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 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 due on Friday. Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year fell 6 Canadian cents to yield 1.603 percent and the

10-year declined 64 Canadian cents to yield 1.937

percent. The 10-year yield touched its highest intraday since Oct. 25 at 1.762 percent.

(Reporting by Fergal Smith; Editing by Phil Berlowitz and Peter Cooney)