×

CANADA FX DEBT-C$ rebounds from 10-week low as trade fears dent greenback

* Canadian dollar at C$1.2823, or 77.98 U.S. cents

* Loonie touches weakest since Dec. 19 at C$1.2895

* Bond prices higher across yield curve

* 10-year yield touches six-week low at 2.170 percent

TORONTO, March 1 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Thursday, recovering from an earlier 10-week low as the greenback broadly fell and investors weighed prospects of a more protectionist trade environment.

The dollar turned lower against a basket of major

currencies on fears of an imminent trade war after President Donald Trump said the United States would impose tariffs on steel and aluminum. Canada will retaliate if the United States imposes tariffs on Canadian steel and aluminum products, Foreign Affairs Minister Chrystia Freeland said. "People are seeing Trump as being antagonistic toward trade," said Colin Cieszynski, chief market strategist SIA Wealth Management. The potential tariffs on steel and aluminum raises doubt about U.S. willingness to come to "any reasonable deal" on NAFTA, Cieszynski said. Trump has 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.

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

trading 0.1 percent higher at C$1.2823 to the greenback, or 77.98 U.S. cents. The currency's strongest level of the session was C$1.2809, while it touched its weakest since Dec. 19 at C$1.2895. 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.

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. In domestic separate data, auto sales rose 2 percent in February from a year earlier and a measure of manufacturing business conditions declined. 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 as stocks fell on Trump's tariff plan, while Federal Reserve Chairman Jerome Powell told U.S. lawmakers that there was scant evidence of the economy overheating.

The 10-year rose 46 Canadian cents to yield

2.176 percent. It touched its lowest intraday since Jan. 17 at 2.170 percent.

(Reporting by Fergal Smith Editing by Susan Thomas and Meredith Mazzilli)