CANADA FX DEBT-Canadian dollar edges lower on sharp drop in oil prices

By Fergal Smith

TORONTO, Jan 15 (Reuters) - The Canadian dollar weakened slightly against its U.S. counterpart on Thursday as oil prices tumbled and investors weighed downbeat domestic economic data.

The loonie CAD= was trading 0.1% lower at 1.3895 per U.S. dollar, or 71.97 U.S. cents, after moving in a range of 1.3878 to 1.3919. On Friday, the currency touched a five-week low at 1.3920.

The price of oil CLc1, one of Canada's major exports, fell 4.9% to $58.97 a barrel as concerns eased over U.S. military action against Iran and potential oil supply disruptions.

The magnitude of oil's drop is "going to hurt Canada's export values pretty quickly," said Darren Richardson, chief operating officer at Richardson International Currency Exchange Inc, adding that soft economic data had contributed to the loonie's recent declines.

Canadian home sales fell 2.7% in December from November, while they were down 4.5% year-over-year without seasonal adjustment. Separate data for November showed wholesale trade and factory sales down 1.8% and 1.2% respectively.

Canadian Prime Minister Mark Carney, who is on a four-day visit to China, has vowed to reduce the economy's reliance on exports to the U.S. market. On Thursday, he hailed Canada's improving ties with China as well as the leadership of President Xi Jinping.

"There is still a lot of work that needs to be done before any celebrations can be had for any trade deals with China," Richardson said.

The U.S. dollar .DXY rose against a basket of major currencies and U.S. Treasury yields climbed after data showed that the number of Americans filing new applications for unemployment benefits unexpectedly fell last week, further boosting expectations the Federal Reserve will keep rates on hold for the next several months.

Canadian yields moved in the other direction. The 10-year CA10YT=RR was down 2.5 basis points at 3.343%, trading at its lowest level since December 5.