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CANADA FX DEBT-Canadian dollar hits a 7-week high as yield spreads widen

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(Adds strategist quote and details throughout; updates prices) * Canadian dollar rises 0.4% against the greenback * Touches its strongest since April 21 at 1.2525 * Canada's trade surplus narrows to C$1.5 billion in April * Canada-U.S. 10-year spread hits widest in nearly 10 years By Fergal Smith TORONTO, June 7 (Reuters) - The Canadian dollar strengthened to its highest level in nearly seven weeks against the greenback on Tuesday as oil prices rose and Canadian bond yields climbed further above their U.S. counterparts. The loonie was trading 0.4% higher at 1.2530 per U.S. dollar, after touching its strongest since April 21 at 1.2525. "We suspect that the CAD may be catching up to its fundamentals, which remain supportive in terms of both oil prices and yield spreads," said Eric Theoret, global macro strategist at Manulife Investment Management. The gap between Canadian and U.S. 10-year yields widened by 4.5 basis points to 20 basis points in favor of the Canadian bond, the widest spread since August 2012. It follows the Bank of Canada's second consecutive half-percentage-point interest rate hike last week, with the central bank saying it was prepared to act "more forcefully if needed" to bring inflation back to target. U.S. crude oil futures settled 0.8% higher at $119.41 a barrel, supported by supply concerns and the prospect of higher demand as China relaxes lockdowns set to control the coronavirus pandemic. Oil is one of Canada's major exports. Canada's trade surplus narrowed unexpectedly to C$1.5 billion in April as both imports and exports slowed, but economists said the lull was likely temporary, with supply chain disruptions easing and oil exports set to rebound. Ivey Purchasing Managers Index data showed that Canadian economic activity expanded at a faster pace in May as a measure of employment climbed to its highest level in 11 months. Meanwhile, the U.S. dollar index fell against a basket of major currencies as U.S. equities shook off an early risk-off mood. Canadian government bond yields were mixed across a flatter curve. The 2-year rose 1.3 basis points to 3.040%, while the 10-year was down 1.7 basis points at 3.178%. (Reporting by Fergal Smith Editing by Mark Heinrich and Marguerita Choy)