CANADA FX DEBT-C$ dips as oil falls, investors weigh NAFTA talks

* Canadian dollar at C$1.2679, or 78.87 U.S. cents

* The price of oil falls 0.5 percent

* Bond prices higher across a flatter yield curve

* Canada's 10-year yield hits a 1-month low at 2.225 percent

TORONTO, Feb 26 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday as oil prices fell and investors weighed talks to revamp the NAFTA trade pact. Mexico and Canada aim to finish reworking less contentious chapters of the North American Free Trade Agreement with the United States in new talks that began on Sunday, hoping to clear the path for a breakthrough on the toughest issues before upcoming elections. Canada sends about 75 percent of its exports to the United States. The price of oil, one of Canada's major exports, slipped but still held close to its highest since early February, supported shipments.

U.S. crude prices were down 0.5 percent at $63.26 a

barrel. At 9:04 a.m. EST (1404 GMT), the Canadian dollar was trading 0.2 percent lower at C$1.2679 to the greenback, or 78.87 U.S. cents. The currency traded in a range of C$1.2615 to C$1.2682. On Thursday, it touched its weakest in two months at C$1.2760. Speculators cut bullish bets on the Canadian dollar for the second straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. As of Feb. 20, net long positions had fallen to 23,127 contracts from 32,529 a week earlier. Also on Friday, domestic data showed stronger-than-expected inflation in January. But other recent data, including manufacturing shipments, wholesale trade and retail sales have pointed to a slowdown in growth at the end of 2017. Figures for Canada's fourth-quarter economic growth will be released on Friday, with analysts expecting the annualized rate will come in below the Bank of Canada's 2.5 percent forecast.

The U.S. dollar was little changed against a basket

of major currencies ahead of Federal Reserve Chairman Jerome Powell's first congressional testimony on Tuesday. Canadian government bond prices were higher on Monday across a flatter yield curve in sympathy with U.S. Treasuries. The

two-year rose 1 Canadian cent to yield 1.778 percent and the 10-year climbed 17 Canadian cents to yield

2.225 percent, its lowest since Jan. 23. The Canadian government will release its latest federal budget on Tuesday. Markets will get updated forecasts on the size of the deficit and will look for any planned return to balance.

(Reporting by Fergal Smith; Editing by David Gregorio)