CANADA FX DEBT-C$ recovers as rate hike prospects offset NAFTA risks

(Adds analyst quotes, details on market activity; updates prices)

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

* Loonie touches its weakest since Dec. 20 at C$1.2590

* Oil settles 0.4 percent higher at $63.80/barrel

* Bond prices mixed across the yield curve

TORONTO, Jan 11 (Reuters) - The Canadian dollar rose against a broadly weaker greenback on Thursday, rebounding from a nearly two-week low earlier in the session as prospects of a Bank of Canada interest rate hike next week offset worries about a U.S. withdrawal from NAFTA.

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

trading at C$1.2527 to the greenback, or 79.83 U.S. cents, up 0.2 percent. It touched its weakest intraday since Dec. 29 at C$1.2590. The United States must be taken seriously when it says it might walk away from the North American Free Trade Agreement, Canada's foreign minister said, a day after government sources said Ottawa was increasingly convinced U.S. President Donald Trump would pull the plug on the trade pact. "A series of reports and denials on the future of NAFTA has the market off balance at the moment," said Adam Button, currency analyst at ForexLive in Montreal. "Traders are weighing the NAFTA news against the likelihood of a Bank of Canada rate hike next week." Chances of a rate hike on Jan. 17 steadied around 70 percent after having fallen on Wednesday, data from the overnight index swaps market showed. They reached nearly 90 percent on Monday, boosted by recent much stronger-than-expected domestic jobs data. "In the bigger picture the U.S. dollar is weak today and that has taken a bit of pressure off the Canadian dollar," Button said.

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

currencies after the European Central Bank said it could revisit its policy message in early 2018, boosting the euro.

The price of oil, one of Canada's major exports, reached its highest in three years on signs of tightening supply in the United States.

U.S. crude oil futures settled 0.4 percent higher at

$63.80 a barrel. Canadian new home prices edged up 0.1 percent in November from October, boosted by gains in Ottawa, data from Statistics Canada showed. Prices were unchanged in a number of other markets, including the major city of Toronto. Canadian government bond prices were mixed across the yield

curve, with the two-year up 1.1 Canadian cents to yield 1.758 percent and the 10-year falling 2

Canadian cents to yield 2.166 percent. On Wednesday, the 10-year yield reached its highest intraday since September 2014 at 2.231 percent.

(Reporting by Fergal Smith; Editing by Phil Berlowitz)