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CANADA FX DEBT-C$ notches 3-week high, supported by recent oil rally

* Canadian dollar at C$1.2636, or 79.14 U.S. cents

* Loonie touches its strongest since Dec. 5 at C$1.2627

* Bond prices mixed across a flatter yield curve

TORONTO, Dec 27 (Reuters) - The Canadian dollar strengthened to a three-week high against its U.S. counterpart on Wednesday, supported by a recent rally in oil prices.

The U.S. dollar lost 0.3 percent against a basket of

currencies and slid against the euro in thin holiday trading.

The price of U.S. crude oil was down 0.43 percent at

$59.71 a barrel after reaching a near two-and-a-half year high in the previous session on supply outages in Libya and the North Sea. Oil is one of Canada's major exports. At 10:04 a.m. EST (1504 GMT), the Canadian dollar traded at C$1.2636 to the greenback, or 79.14 U.S. cents, up 0.4 percent. The currency's weakest level of the session was C$1.2694, while it touched its strongest since Dec. 5 at C$1.2627. Data before the Christmas break showed that domestic economic growth stalled in October. It offset inflation, trade and retail sales data from earlier last week that had made a January interest rate hike by the Bank of Canada a 50-50 call.

Still, Canada's economy faces a number of potential headwinds, including renegotiation of the North American Free Trade Agreement. Officials from Canada, the United States and Mexico will meet in Montreal Jan. 23-28 for talks on thorny subjects such as autos, dispute settlement and an expiry clause. Speculators have added to bullish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. As of Dec. 19, net long positions had increased to 45,901 contracts from 41,960 a week earlier. Canadian government bond prices were mixed across a flatter

yield curve, with the two-year down 0.5 Canadian cent

to yield 1.665 percent and the benchmark 10-year rising 16 Canadian cents to yield 2.006 percent. On Friday, the 2-year yield reached a 6-1/2-year high at 1.709 percent.

(Reporting by Fergal Smith; Editing by Jeffrey Benkoe)