CANADA FX DEBT-C$ holds near 2-1/2-month high as oil advances

* Canadian dollar at C$1.2527, or 79.83 U.S. cents

* Loonie hits strongest since Oct 20 at C$1.2499

* Bond prices higher across the yield curve

TORONTO, Jan 3 (Reuters) - The Canadian dollar dipped against its U.S. counterpart on Wednesday, but held near an earlier 2-1/2-month high as oil prices climbed.

The U.S. dollar pared some recent losses against a

basket of major currencies as investors consolidated positions before manufacturing data and minutes of a December U.S. Federal Reserve meeting due later in the day. The price of oil, one of Canada's major exports, rose to new two-and-a-half year highs as robust output in the United States and Russia balanced tensions from a sixth day of unrest in OPEC member Iran.

U.S. crude prices were up 0.91 percent at $60.92 a

barrel. At 9:29 a.m. EST (1429 GMT), the Canadian dollar was trading at C$1.2527 to the greenback, or 79.83 U.S. cents, down 0.1 percent. The currency traded in a narrow range between C$1.2499 - its strongest since Oct. 20 - and C$1.2532. Canada's employment report for December and November trade data are due on Friday, which could help guide expectations for additional Bank of Canada interest rate hikes this year. The central bank raised its benchmark interest rate for the first time in seven years in July and then again in September, to leave it at 1 percent. Money markets expect three further rate hikes in 2018. Canadian government bond prices were higher across the yield

curve, with the two-year up 2 Canadian cents to yield 1.692 percent and the 10-year rising 8 Canadian

cents to yield 2.071 percent. On Tuesday, the 10-year yield touched its highest in more than two months at 2.093 percent.

(Reporting by Fergal Smith; Editing by Bernadette Baum)