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CANADA FX DEBT-Loonie dips as trade war fears hurt commodities outlook

Fergal Smith

(Adds strategist quotes, details throughout, updates prices)

* Canadian dollar weakens 0.1% against the greenback

* Price of U.S. oil decreases 1.4%

* Canadian bond prices rise across a flatter yield curve

* Gap between 2- and 10-year yields hits narrowest in five weeks

TORONTO, May 7 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as investors worried that trade negotiations between the United States and China were unraveling, which could hurt the economies of countries that export commodities. Global stocks added to this week's losses after U.S. President Donald Trump in a surprise move on Sunday threatened to hike tariffs on Chinese goods this week. U.S. officials have said China has backtracked on substantial commitments made during months of trade negotiations. Canada runs a current account deficit and exports many commodities, including oil, so its economy could suffer if the global flow of capital or trade slows. "It's a return to the trade war theme," said Bipan Rai, North America head of FX strategy at CIBC Capital Markets. "That's going to weigh on commodity exporting currencies across the globe, including the Canadian dollar." The price of oil closed at its lowest in over a month on doubts about the trade deal and on expectations that U.S. crude stockpiles could hit fresh 19-month highs. U.S. crude oil

futures settled down 1.4% at $61.40 a barrel.At 4:00 p.m. (2000 GMT), the Canadian dollar was

trading 0.1% lower at 1.3472 to the greenback, or 74.23 U.S. cents. The currency traded in a range of 1.3410 to 1.3489. The loonie edged lower despite data showing that the pace of Canadian purchasing activity climbed to a four-month high in April. The seasonally adjusted Ivey Purchasing Managers Index rose to 55.9 from 54.3 in March, surpassing analysts' expectations for 53.0. Canadian housing starts data for April is due on Wednesday, while the April jobs report is due on Friday. Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year rose 8 Canadian cents to yield 1.580% and the 10-year was up 49 Canadian cents to yield 1.684%. The gap between Canada's 2- and 10-year yields narrowed by 1.1 basis points to a spread of 10.4 basis points, its narrowest since April 1.

(Reporting by Fergal Smith Editing by Alistair Bell and Bill Berkrot)