CANADA FX DEBT-C$ gains as easing trade tensions boost rate hike prospects

(Adds strategist quotes and details on market activity; updates prices)

* Canadian dollar at C$1.2858, or 77.77 U.S. cents

* Oil prices fall 0.5 percent

* Bond prices lower across the yield curve

TORONTO, March 26 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday as reduced fears of a global trade war bolstered prospects of further Bank of Canada interest rate hikes over the coming months. Stocks on Wall Street rallied following reports the United States and China are willing to renegotiate tariffs and trade imbalances. Canada's commodity-linked economy could be hurt if global trade slowed. "We are seeing a general easing of the trade risk component in the market place, and that's staring to help the loonie," said Colin Cieszynski, chief market strategist at SIA Wealth Management. "If you do see the trade risk start to ease in the Canadian dollar then you will likely go back to speculation as to when will the Bank of Canada start raising rates again," Cieszynski said. The central bank has raised interest rates three times since July. Chances of another hike by May have increased to 82 percent from 74 percent before hotter-than-expected domestic inflation data on Friday, the overnight index swaps market indicated.

At 4 p.m. EDT (2000 GMT), the Canadian dollar was

trading 0.3 percent higher at C$1.2858 to the greenback, or 77.77 U.S. cents. The currency traded in a range of C$1.2841 to C$1.2922. The loonie has also benefited recently from optimism about a deal to revamp the North American Free Trade Agreement. It rose 1.6 percent last week, while it touched on Friday its strongest since March 12 at C$1.2824. Speculators have raised bullish bets on the Canadian dollar for the first time in six weeks, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. As of March 20, net long positions had increased to 24,560 contracts from 19,420 a week earlier.

The U.S. dollar fell to a five-week low against a

basket of major currencies on Monday as investors' appetite for risk improved. The price of oil, one of Canada's major exports, slipped as investors cashed in some profits from last week's rally but concerns about Saudi-Iran tensions kept losses in check.

U.S. crude oil futures settled 0.5 percent lower at

$70.12 a barrel. Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year fell 5.5 Canadian cents to yield 1.883 percent and the 10-year declined 31 Canadian cents to yield 2.233 percent. Canada's gross domestic product data for January is due on Thursday.

(Reporting by Fergal Smith; Editing by Sandra Maler)