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CANADA FX DEBT-C$ weakens as U.S-China trade dispute intensifies

* Canadian dollar falls 0.2% against the greenback

* Price of U.S. oil rises 1.7%

* Canadian bond prices rise across a flatter yield curve

TORONTO, May 13 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday as investors worried about the damage to the global economy of an escalating trade dispute between the United States and China.

Global stocks added to last week's losses as U.S.

President Donald Trump warned Beijing not to retaliate in a trade dispute after China said it "will never surrender to external pressure." Canada runs a current account deficit and exports many commodities, including oil, so its economy could be hurt by a slowdown in the global flow of capital or trade. Oil prices rose as increasing concerns about supply disruptions in the Middle East offset worries over global

economic growth prospects. U.S. crude oil futures were up

1.7% at $62.73 a barrel.

At 8:59 a.m. (1259 GMT), the Canadian dollar was

trading 0.2% lower at 1.3434 to the greenback, or 74.44 U.S. cents. The currency traded in a range of 1.3420 to 1.3453. On Friday, the loonie touched a nine-day high at 1.3481 after data showing a record jobs gain. Speculators have cut their bearish bets on the Canadian dollar for the third straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of May 7, net short positions had fallen to 46,115 contracts from 46,745 in the prior week. Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries, with the two-year up 5.5 Canadian cents to yield 1.612% and the 10-year rising 39 Canadian cents to yield 1.691%. The gap between the yields on the 10-year bond and the 3-month T-bill narrowed by 4.2 basis point to a spread of 1.6 basis points in favor of the longer-dated maturity, close to inversion. Canada's inflation report for April is due on Wednesday.

(Reporting by Fergal Smith Editing by Nick Zieminski)