CANADA FX DEBT-Canadian dollar hits nearly two-week high against out-of-favor greenback

By Fergal Smith

TORONTO, Jan 20 (Reuters) - The Canadian dollar strengthened to nearly a two-week high against its U.S. counterpart on Tuesday as investors' negative reaction to the threat of a fresh U.S. trade clash with Europe weighed on the greenback.

The loonie CAD= was trading 0.3% higher at 1.3830 per U.S. dollar, or 72.31 U.S. cents, after touching its strongest intraday level since January 7 at 1.3815.

"We're seeing the U.S. dollar take it on the chin and obviously the Canadian dollar is benefiting as a result of that movement," said Rahim Madhavji, president at KnightsbridgeFX.com. "It looks like the market is rattled by the actions of the U.S. administration."

The U.S. dollar .DXY posted its biggest decline since August against a basket of major currencies after White House threats to Europe over the future of Greenland triggered a broad selloff across U.S. stocks and government bonds.

Canadian Prime Minister Mark Carney said his country strongly opposed any tariffs being imposed by the U.S. to further President Donald Trump's aim of acquiring Greenland.

Carney is trying to foster a new global trading order by working more closely with China and inking smaller trade deals, but faces constraints from Canada's still overwhelming economic dependency on the U.S. market.

Canada sends the majority of its exports to the U.S., including oil. U.S. crude oil futures CLc1 settled 1.8% higher at $60.34 a barrel on the temporary suspension of output at Kazakhstan's oil fields and expectations of firmer global economic growth that could drive fuel demand.

Canadian bond yields moved higher across a steeper curve as investors globally reacted to turbulence in Japanese government bonds. The 10-year CA10YT=RR was up 4.6 basis points at 3.431%.