CANADA FX DEBT-C$ climbs to 4-week high ahead of potential rate hike

(Updated at 3 p.m. ET (1900 GMT))

By Fergal Smith

TORONTO, June 6 (Reuters) - The Canadian dollar strengthened to a near four-week high against the greenback on Tuesday as investors bet that the Bank of Canada would resume its tightening campaign at an interest rate decision on Wednesday or in the coming months.

The loonie was trading 0.3% higher at C$1.34 to the greenback, or 74.63 U.S. cents, after touching its strongest intraday level since May 11 at 1.3391.

The gain for the loonie came after a surprise move by the Reserve Bank of Australia to raise interest rates further that boosted the Australian dollar.

"Focus on Wednesday's BoC policy decision is intensifying after the 'surprise' RBA hike earlier today," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

"A rate hike tomorrow should give the CAD a modest lift, at the very least, the more so if the BoC does not shut the door on more tightening."

Money markets see a roughly 45% chance of the Canadian central bank raising its benchmark rate on Wednesday after leaving it on hold at a 15-year high of 4.50% since January. A hike is fully priced in by the next meeting in July.

The loonie rose despite gains for the U.S. dollar against a basket of major currencies and a decline in the price of oil, one of Canada's major exports. U.S. crude oil futures settled 0.6% lower at $71.74 a barrel.

The currency also overcame downbeat economic data. Canadian building permit values fell 18.8% in April, a bigger decline than expected, and the Ivey PMI showed that economic activity expanded at the slowest pace in three months.

Canadian government bond yields rose across the curve. The 2-year touched its highest level since October 2007 at 4.471% before dipping to 3.388%, up 6.1 basis points on the day. (Reporting by Fergal Smith, Editing by Nick Zieminski)