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CANADA FX DEBT-Loonie cuts weekly decline as investor nervousness subsides

By Fergal Smith

(Adds strategist quote and details throughout; updates prices) * 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 0.7% * Canada's 10-year yield touches a near one-month low at 1.228% By Fergal Smith TORONTO, Oct 4 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday, paring this week's decline, as domestic data showed narrowing in the trade deficit and investor worries receded about the state of the global economy. A report showing a modest increase in U.S. jobs lifted world equity benchmarks broadly, restoring calm after one of the worst weeks for stocks in months. "There is deep uncertainty about the state of the global economy and that has led to some wild swings in sentiment and the Canadian dollar was taken along for the ride," said Adam Button, chief currency analyst at ForexLive. Canada is more dependent on trade than some other countries, such as the United States. At C$1.5 trillion, trade of goods and services, including oil and motor vehicles, accounted for 66% of Canada's economy in 2018, according to government data. Data from Statistics Canada showed that Canada's trade deficit shrank by almost a third in August to C$955 million as exports broke a two-month slump, rising by 1.8%. Export volumes were less encouraging, dipping 0.2%, while the seasonally adjusted Ivey PMI tumbled to 48.7 in September, its lowest level since March 2015, indicating a contraction in economic activity. At 4:41 p.m. (2041 GMT), the Canadian dollar was trading 0.2% higher at 1.3314 to the greenback, or 75.11 U.S. cents. The currency, which traded in a range of 1.3300 to 1.3339, was down 0.5% for the week. Friday's gain for the loonie came as the price of oil, one of Canada's major exports, rebounded from a near two-month low the day before. U.S. crude oil futures settled 0.7% higher at $52.81 a barrel. 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. Speculators have raised their bullish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of Oct. 1, net long positions had increased to 6,327 contracts from 4,592 in the prior week. Canadian government bond prices were higher across a flatter yield curve, with the two-year rising 1.5 Canadian cents to yield 1.413% and the 10-year up 18 Canadian cents to yield 1.232%. The 10-year yield touched its lowest intraday level since Sept. 5 at 1.228%. (Reporting by Fergal Smith Editing by Nick Zieminski and Sandra Maler)