CANADA FX DEBT-Canadian dollar hits nearly four-month low as war raises growth concerns

By Fergal Smith

TORONTO, March 30 (Reuters) - The Canadian dollar weakened to nearly a four-month low against its U.S. counterpart on Monday as the Middle East conflict dragged on, raising the prospect that slower economic growth would offset the inflationary impulse of higher energy prices.

The loonie CAD= was trading 0.2% lower at 1.3925 per U.S. dollar, or 71.81 U.S. cents, after touching its weakest intraday level since December 5 at 1.3944.

U.S. President Donald Trump warned that Iran's energy plants and oil wells would be obliterated if it did not open the Strait of Hormuz, after Tehran described U.S. peace proposals as "unrealistic" and fired waves of missiles at Israel.

"The longer that the situation goes on, it's not growth-positive," said Darcy Briggs, a portfolio manager at Franklin Templeton Canada. "This dramatic energy shock will show up in economic aggregates with a lag."

The price of oil, one of Canada's major exports, was trading 3.9% higher at $103.49 a barrel, while the U.S. dollar .DXY extended its recent gains against a basket of major currencies.

Canadian GDP data, due to be released on Tuesday, is expected to show a flat reading for January. It could help guide expectations for the Bank of Canada's policy outlook.

Earlier this month, the BoC left its benchmark interest rate on hold at 2.25% and said it was too early to assess the effect of the war.

"Generally, central banks look through these price shocks ... and I think they'll be on hold for the next few meetings to weigh the consequence of all this and what it really means for the Canadian economy," Briggs said.

Money markets have priced in about 50 basis points of tightening from the BoC this year, down from the 70 basis points expected just a few days ago. 0#CADIRPR

Canadian bond yields moved lower across the curve, tracking moves in U.S. Treasuries.

The 10-year yield CA10YT=RR was down 8.8 basis points at 3.493%. Last Monday, it touched nearly a two-year high at 3.643%.