CANADA FX DEBT-Canadian dollar edges closer to 8-month high as interest rate outlook provides support

By Fergal Smith

TORONTO, June 10 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Tuesday as investors weighed some positive signals on trade talks between the United States and China and after the Bank of Canada's recent policy decision underscored the central bank's patience on cutting interest rates further.

The loonie CAD= was trading 0.1% higher at 1.3687 per U.S. dollar, or 73.06 U.S. cents, after moving in a range of 1.3669 to 1.3728. Last Thursday, the currency touched its strongest intraday level since October 8 at 1.3632.

"We see scope for further CAD gains as the markets adjust to the BoC's reluctantly neutral stance," Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.

Last Wednesday, the BoC left its benchmark rate on hold, at 2.75%, for a second straight meeting, citing the need to probe the effects of U.S. trade policy.

Investors see just one more rate cut from the central bank in the current easing cycle, after expecting two less than a month ago. Recent data has showed underlying inflation heating up in April, first-quarter economic growth that was stronger than expected and a surprise jobs gain for May.

Increased government military spending, announced on Monday, could also stand in the way of rate cuts, according to some analysts.

U.S. Commerce Secretary Howard Lutnick said trade talks in London with Chinese officials were going well and he hoped they would end on Tuesday night, but said they could run into Wednesday.

Canada is a major exporter of commodities, including oil, so the loonie tends to be sensitive to the outlook for the global economy.

The price of oil CLc1 settled 0.5% lower at $64.98 a barrel, while Canadian bond yields were mixed across the curve. The 10-year CA10YT=RR eased 1.1 basis points to 3.345%.