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CANADA FX DEBT-Canadian dollar turns lower as trade hopes boost greenback

Fergal Smith

(Adds strategist quote and details on activity; updates prices)

* Canadian dollar falls 0.1% against greenback

* Canada's trade deficit narrows to C$978 million in Sept.

* Price of U.S. oil increases 1.2%

* Canadian bond prices fall across steeper yield curve

TORONTO, Nov 5 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday, pulling back from an earlier six-day high as the greenback benefited from hopes the United States and China were moving closer to a trade deal.

At 3:14 p.m. (2014 GMT), the Canadian dollar was

trading 0.1% lower at 1.3157 to the greenback, or 76.01 U.S. cents. The currency's weakest level was 1.3178, while it touched its strongest since last Wednesday at 1.3116.

The U.S. dollar climbed against a basket of major

currencies, including the safe-haven yen and Swiss franc, as increased appetite for risk spurred investors to seek higher-yielding currencies. "The (U.S.) dollar is looking a bit cheap on our dashboard and we think this development on trade, incremental optimism there, pared with a rebound in ISM services is probably helping to fuel the dollar again," said Mazen Issa, senior FX strategist at TD Securities. Data from the Institute for Supply Management (ISM) showed that activity in the U.S. services sector picked up in October to a faster-than-expected pace. Hopes for a U.S.-China trade deal also boosted the price of oil, one of Canada's major exports. U.S. crude oil futures settled 1.2% higher at $57.23 a barrel. Canada's trade deficit narrowed in September to C$978 million, compared with a revised August deficit of C$1.24 billion, as imports declined more than the drop in exports, data from Statistics Canada showed. Separate data from the Toronto Real Estate Board (TREB) showed that Toronto's housing market tightened in October, with the average price rising 5.5% on a year-over-year basis.

Canadian government bond prices were lower across a steeper

yield curve, with the two-year down 8 Canadian centsto yield 1.638% and the 10-year falling 74 Canadian

cents to yield 1.608%. The gap between Canada's 2- and 10-year yields narrowed by 4 basis points to a spread of 3 basis points in favor of the shorter-dated bond, the narrowest gap since July 29.

(Reporting by Fergal Smith; Editing by Paul Simao and Peter Cooney)