CANADA FX DEBT-Loonie steadies, bond yields climb as Canada commits to defense spending surge

By Fergal Smith

TORONTO, June 25 (Reuters) - The Canadian currency was barely changed against its U.S. counterpart on Wednesday and bond yields climbed as investors weighed Canada's commitment to raise military spending and after recent domestic data did little to advance prospects of an interest-rate cut next month.

The loonie CAD= was trading nearly unchanged at 1.3730 per U.S. dollar, or 72.83 U.S. cents, after trading in a range of 1.3715 to 1.3754.

"I think we stay in a range for a while," said Aaron Hurd, a senior portfolio manager in the currency group at State Street Global Advisors. "It looks like the Canadian economy, the monetary policy outlook is fairly stable."

Investors see a roughly two-in-three chance the Bank of Canada leaves its benchmark interest rate on hold at 2.75% at the next policy decision on July 30 after data on Tuesday showed underlying inflation eased only somewhat in May. 0#CADIRPR

Canada will join NATO's new defense investment pledge and invest 5% of its gross domestic product in defense spending by 2035, Canadians Prime Minister Mark Carney said.

"The details are extremely important. If it is spent in growing a domestic defense production capability, it will have a much greater positive impact on long-run Canadian growth compared to simply expanding the size of the military and buying imported weapons and supplies," Hurd said.

Debt issuance could rise to pay for the extra spending, say analysts. The Canadian 10-year yield rose 4.8 basis points to 3.322%, while the gap between it and the equivalent U.S. rate narrowed by nearly 4 basis points to 98 basis points in favor of the U.S. note.

The price of oil, one of Canada's major exports, clawed back some of this week's declines as investors assessed the stability of a ceasefire between Iran and Israel. U.S. crude oil futures CLc1 were trading 1.5% higher at $65.32 a barrel.