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CANADA FX DEBT-C$ hits 8-month low as Trump squeezes NAFTA partners

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* Canadian dollar at C$1.2988, or 76.99 U.S. cents

* Loonie touches its weakest since July 5 at C$1.3002

* Bond prices rise across much of the yield curve

* 10-year yield touches lowest since Jan. 11 at 2.145 percent

TORONTO, March 5 (Reuters) - The Canadian dollar weakened to an eight-month low against its U.S. counterpart on Monday after U.S. President Donald Trump used proposed tariffs on steel and aluminum as a bargaining chip in talks to revamp NAFTA. Trump is expected to finalize the tariffs later in the week. He appeared to tie possible exemptions for Canada and Mexico to a "new" North American Free Trade Agreement as well as other steps. "It once again puts the risk of NAFTA and disruptions to trade flows... right back at the forefront of people's considerations," said Scott Lampard, head of global markets at HSBC Bank Canada. Canada is the largest supplier of both steel and aluminum to the United States. Its commodity-linked economy could be hurt if NAFTA were to collapse or if more protectionist trade policies were to lead to a slowdown in global trade.

At 4 p.m. EST (2110 GMT), the Canadian dollar was

trading 0.8 percent lower at C$1.2988 to the greenback, or 76.99 U.S. cents. The currency touched its weakest since July 5 at C$1.3002. Losses for the loonie came after data on Friday showed Canada's economy grew by an annualized 1.7 percent in the final quarter of 2017, short of the Bank of Canada's forecast of 2.5 percent. The central bank has raised interest rates three times since July but is expected to leave its benchmark interest rate on hold at 1.25 percent in a policy announcement on Wednesday. HSBC's Lampard said he expects the Bank of Canada to wait until the first quarter of next year before raising interest rates again. Domestic trade data for January is also due on Wednesday and the February employment report is due on Friday. The price of oil, one of Canada's major exports, rose along with the U.S. stock market on forecasts for robust oil demand

growth. U.S. crude oil futures settled 2.2 percent higher

at $62.57 a barrel. Canadian government bond prices were higher across much of

the yield curve. The two-year rose 4.5 Canadian cents to yield 1.748 percent and the 10-year gained 6

Canadian cents to yield 2.192 percent. The 10-year yield touched its lowest intraday since Jan. 11 at 2.145 percent, while the gap between it and its U.S. equivalent widened by 3.1 basis points to a spread of -68.9 basis points, its widest since June 12.

(Reporting by Fergal Smith Editing by Nick Zieminski and Dan Grebler)