CANADA FX DEBT-C$ hits 10-week low on trade worries, lower oil prices

* Canadian dollar at C$1.2849, or 77.83 U.S. cents

* Loonie touches weakest since Dec. 20 at C$1.2865

* Bond prices higher across the yield curve

* 10-year yield touches a six-week low

TORONTO, March 1 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday, adding to a 10-week low as oil prices fell and investors weighed the potential introduction of U.S. trade protection measures. The price of oil, one of Canada's major exports, fell for a third day as rising U.S. inventories, record output and a stronger dollar outweighed high compliance by major producers with a supply-cutting deal.

U.S. crude prices were down 1.72 percent at $60.58 a

barrel. U.S. President Donald Trump tweeted that the U.S. steel and aluminum industries need "free, fair and smart trade" as a U.S. cable channel reported that he will make an announcement on tariffs at 11 a.m. (1600 GMT). Trump has also repeatedly threatened to walk away from the North American Free Trade Agreement between the United States, Canada and Mexico unless major changes are made. Canada sends about 75 percent of its exports to the United States. Investors worry that a more protectionist trade environment could hurt Canada's economy. At 10:09 a.m. EST (1509 GMT), the Canadian dollar was trading 0.1 percent lower at C$1.2849 to the greenback, or 77.83 U.S. cents. The currency's strongest level of the session was C$1.2828, while it touched its weakest since Dec. 20 at C$1.2865. The loonie posted in February its biggest monthly decline since the Alberta wildfire, pressured by a Federal budget on Tuesday that balked at a response to U.S. tax reform.

The U.S. dollar gained ground on Thursday against a

basket of major currencies, boosted by U.S. manufacturing data and potential monetary policy divergence. Canada's current account deficit narrowed in the fourth quarter as the country posted a smaller shortfall in the trade of goods after three consecutive quarters of increases, data from Statistics Canada showed. Figures for Canada's fourth-quarter economic growth will be released on Friday, with analysts expecting the annualized rate to come in below the Bank of Canada's 2.5 percent forecast. Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year rose 2 Canadian cents to yield 1.779 percent and the 10-year climbed 18 Canadian cents to yield 2.212 percent. The 10-year yield touched its lowest intraday since Jan. 17 at 2.197 percent.

(Reporting by Fergal Smith Editing by Susan Thomas)