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CANADA FX DEBT-C$ notches near 4-month high, helped by NAFTA optimism

* Canadian dollar at C$1.2331, or 81.10 U.S. cents

* Currency touches a nearly four-month high at C$1.2318

* Bond prices lower across a steeper yield curve

* 10-year yield reaches highest in more than three years

TORONTO, Jan 24 (Reuters) - The Canadian dollar strengthened to a nearly four-month high against its U.S. counterpart on Wednesday, supported by upbeat signs on talks to renegotiate NAFTA and as the greenback broadly fell.

The U.S. dollar slid to a three-year low against a

basket of major peers after the U.S. Treasury secretary said he welcomed weakness in the currency. The price of oil, one of Canada's major exports, climbed as

the greenback lost ground. U.S. crude prices were up 0.40

percent to $64.73 a barrel. On Tuesday, officials opened a key round of negotiations to modernize NAFTA amidst optimistic signs, as U.S. President Donald Trump said the talks were going "pretty well" and Canada's chief negotiator said he had high hopes for progress.

Canada has responded to the lack of clarity over the future of the 1994 agreement by attempting to diversify its trade. It and 10 other nations have agreed to sign a reworked Asia-Pacific trade pact. At 9:10 a.m. EST (1410 GMT), the Canadian dollar was trading 0.7 percent higher at C$1.2331 to the greenback, or 81.10 U.S. cents. The currency's weakest level of the session was C$1.2428, while it touched its strongest since Sept. 25 at C$1.2318. Investors are awaiting domestic data later in the week which could help guide expectations for further Bank of Canada interest rate hikes. Last week, the central bank raised its benchmark interest rate by 25 basis points to 1.25 percent, its highest since January 2009, after recent data showed stronger inflation and strong job growth. Canadian retail sales data for November is due on Thursday and the December inflation report 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 1.5 Canadian cents to yield 1.814 percent and

the 10-year declined 21 Canadian cents to yield

2.256 percent. The 10-year yield touched its highest intraday since September 2014 at 2.265 percent.

(Reporting by Fergal Smith; Editing by Phil Berlowitz)