(Adds analyst quote and details on NAFTA, updates prices)
* Canadian dollar ends at C$1.3203, or 75.74 U.S. cent
* Bond prices higher across flatter yield curve
By Fergal Smith
TORONTO, Sept 27 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday, recovering from a nearly six-month low earlier in the session as the market digested the U.S. presidential debate.
A view that Democratic U.S. presidential candidate Hillary Clinton fared better than rival Donald Trump in a television debate supported Mexico's peso MXN= and the Canadian dollar, both of which have strong trade ties to the United States. of them had taken a beating over the last few days in anticipation of the presidential debate," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets, who thinks some of the discount incorporated into the currencies was pared.
Trump has said he would renegotiate or scrap the North American Free Trade Agreement if he is elected.
The Canadian dollar CAD=D4 ended at C$1.3203 to the greenback, or 75.74 U.S. cents, stronger than Monday's close of C$1.3237, or 75.55 U.S. cents.
The currency's strongest level of the session was C$1.3164, while it touched its weakest since March 28 at C$1.3281 as oil fell and after a dovish speech by Bank of Canada Governor Stephen Poloz on Monday. recognized that the economy is not going to respond as positively to previous falls in the Canadian dollar, said Adam Cole, global head of FX strategy at RBC Capital Markets.
It suggests that the loonie may need to fall further to support the economy, Cole added.
U.S. crude CLc1 prices settled $1.26 lower at $44.67 a barrel after Saudi Arabia and Iran dashed market hopes for an output-limiting deal from an oil producer meeting in Algeria. O/R
Canadian policymakers are facing increased pressure to support the country's lackluster economy as infrastructure spending takes time to kick in and record high debt loads dampen the impact of stimulus cheques. implied probability of a Bank of Canada rate cut by mid-2017 has increased to nearly 50 percent from less than 20 percent before a weaker-than-expected inflation report on Friday, overnight index swaps data shows. BOCWATCH
Canadian government bond prices were higher across a flatter yield curve, with the two-year CA2YT=RR up 0.5 Canadian cent to yield 0.497 percent and the benchmark 10-year CA10YT=RR rising 28 Canadian cents to yield 0.965 percent.
Earlier in the session the 10-year yield touched its lowest since Aug. 11 at 0.944 percent.
Canada's gross domestic product data for July is due on Friday. ECONCA