CANADA FX DEBT-Canadian dollar gains as safe-haven currency demand eases

By Fergal Smith

TORONTO, March 4 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as rising hopes that the Middle East conflict may end sooner than previously feared clipped safe-haven demand for the greenback.

The loonie CAD= was trading 0.2% higher at 1.3650 per U.S. dollar, or 73.26 U.S. cents, after moving in a range of 1.3645 to 1.3700.

Wall Street indexes rose and the U.S. dollar pulled back from the multi-month highs it touched on Tuesday against a basket of major currencies as investors weighed a report that Iranian operatives secretively reached out to the U.S. to pursue talks to end the conflict.

"We continue to expect volatility to stay elevated, but unless the conflict prompts a deeper global growth scare, oil support should help the loonie outperform European peers," strategists at Monex Europe said in a note.

The price of oil CLc1, one of Canada's major exports, settled 0.1% higher at $74.66 a barrel, adding to its recent gains, as the Middle East conflict disrupted output.

"Medium-term, we see USD-CAD drifting lower, consistent with the view that the Bank of Canada will hold rates steady and that commodity fundamentals remain constructive," the Monex Europe strategists said.

Investors expect the BoC to leave its benchmark interest rate unchanged at 2.25% this year. 0#CADIRPR

BoC Governor Tiff Macklem said on Wednesday that the risks posed to debt markets by hedge funds and private credit might be growing faster than the ability of monitoring agencies to understand and mitigate them.

Domestic economic data was downbeat. Canada's services economy contracted for a fourth straight month in February as an uncertain trading environment contributed to declines in activity and new business, S&P Global's Canada services PMI data showed.

Separate data showed that Canadian labor productivity fell by 0.1% in the fourth quarter, as hours worked declined at a slower pace than the real GDP.

Canadian bond yields were mixed across the curve, with the 10-year CA10YT=RR up two basis points at 3.263%.