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CANADA FX DEBT-Loonie cuts weekly decline as oil rallies, trade deficit narrows

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* Canadian dollar rises 0.2% against the greenback

* Canada's August trade deficit narrows to less than C$1 billion

* The price of U.S. oil increases 1.3%

* Canada's 10-year yield touches a near one-month low at 1.230%

TORONTO, Oct 4 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday, paring this week's decline, as oil prices rallied and domestic data showed the trade deficit narrowed in August. Canada posted a trade deficit of C$955 million in August after a revised C$1.4 billion deficit in July, as both imports and exports rose, Statistics Canada said. Export volumes were less encouraging, dipping 0.2%. The price of oil, one of Canada's major exports, rose but remained on track for a second consecutive weekly loss after sliding on fears that slower global economic growth would hurt

energy demand. U.S. crude oil futures were up 1.3% at

$53.12 a barrel.

At 9:28 a.m. (1328 GMT), the Canadian dollar was

trading 0.2% higher at 1.3304 to the greenback, or 75.17 U.S. cents. The currency, which was on track to decline 0.4% for the week, traded in a range of 1.3300 to 1.3339. The gain for the loonie came as data showed that U.S. job growth increased moderately in September, which could assuage financial market concerns that the slowing economy was on the brink of a recession amid lingering trade tensions. The Canadian dollar will gain ground against its U.S. counterpart over the coming year, supported by strengthening of the domestic economy and a narrower gap between Canadian and U.S. interest rates, a Reuters poll predicted. Canadian government bond prices were lower across much of the yield curve in sympathy with U.S. Treasuries. The two-year fell 3 Canadian cents to yield 1.438% and the

benchmark 10-year was down 6 Canadian cents to yield

1.257%. The 10-year yield touched its lowest intraday level since Sept. 5 at 1.230%.

(Reporting by Fergal Smith Editing by Nick Zieminski)