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CANADA FX DEBT-Canadian dollar gains on better-than-expected GDP growth

Levent Uslu

* Canadian dollar rises 0.3% against the greenback

* Canada's GDP grows 0.2% in May

* U.S. oil prices increase 1%

* Bond prices move lower across the yield curve

TORONTO, July 31 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, ahead of a Federal Reserve interest rate decision, as domestic data showed that gross domestic product grew more than expected in May. Canada's economy grew by 0.2% in May, beating estimates for 0.1% growth, thanks to a rebound in manufacturing, according to data from Statistics Canada. The data supported investor expectations that the Bank of Canada will leave its benchmark interest rate unchanged at 1.75% this year, after the central bank made clear earlier this month it had no intention of easing monetary policy, diverging from some other major central banks. Money markets are convinced the Fed will cut its benchmark interest rate by 25 basis points on Wednesday for the first time since the financial crisis more than a decade ago, but it remains to be seen whether this is going to be a one-time cut or whether more reductions will follow.

At 9:13 a.m. (1313 GMT), the Canadian dollar was

trading 0.3% higher at 1.3119 to the greenback, or 76.23 U.S. cents. The currency traded in a range of 1.3119 to 1.3160. Meanwhile, the price of oil, one of Canada's major exports, rose for a fifth day, as U.S. inventories dropped and as investors expect the Fed to lower borrowing costs. U.S. crude

oil futures were up 1% at $58.65 a barrel.

Canadian government bond prices were lower across the yield

curve, with the two-year down 2.5 Canadian cents toyield 1.546% and the 10-year falling 19 Canadian

cents to yield 1.514%.

(Reporting by Levent Uslu; Editing by Steve Orlofsky)