* Canadian dollar at C$1.2990, or 76.98 U.S. cents
* Loonie matches Monday's low as weakest in 8 months
* Bond prices higher across the yield curve
* Bank of Canada leaves benchmark rate at 1.25 percent
By Fergal Smith
TORONTO, March 7 (Reuters) - The Canadian dollar weakenedagainst the greenback on Wednesday as expectations fell forfurther Bank of Canada interest rate hikes over the comingmonths after the central bank worried about trade policydevelopments.
The Bank of Canada said that trade policy is an "importantand growing source of uncertainty for the global and Canadianoutlooks," as it left its benchmark interest rate unchanged at1.25 percent. sends 75 percent of its exports to the United States.Its economy could be hurt by an uncertain outlook for the NorthAmerican Free Trade Agreement and planned U.S. tariffs on steeland aluminum.
The resignation of top U.S. economic adviser Gary Cohn couldgive free trade skeptics the upper hand in the White House. real big issue is you still probably have another ratehike you have to price out for this year," said Mark McCormick (NYSE:MKC),North American head of FX Strategy at TD Securities. "It hasbeen our view for the last month or so that two more hikespriced in this year is pretty aggressive.
The Bank of Canada has raised its benchmark interest ratethree times since July. The amount of further tighteninganticipated this year by money markets slipped to 44 bps from 50basis points on Tuesday. BOCWATCH CA/POLL
Canada's trade deficit narrowed more than expected to C$1.91billion in January as imports pulled back from a record high,but exports tumbled by the most in six months, data fromStatistics Canada showed. price of oil, one of Canada's major exports, fell afterU.S. government data showed an increase in inventories and asfinancial markets slid. U.S. crude CLc1 prices were down 2.8percent at $60.84 a barrel. 12:21 p.m. EST (1721 GMT), the Canadian dollar CAD=D4 was trading 0.9 percent lower at C$1.2990 to the greenback, or76.98 U.S. cents.
The currency matched Monday's low at C$1.3002, which was itsweakest since July 5.
Still, the Canadian dollar is forecast to rally over thecoming year, a Reuters poll showed, as global economic strengthand a broadly weaker greenback offsets investor fears of a tradewar. government bond prices were higher across the yieldcurve in sympathy with U.S. Treasuries on safe-haven buying asstocks fell.
The two-year CA2YT=RR rose 4.5 Canadian cents to yield1.752 percent and the 10-year CA10YT=RR climbed 25 Canadiancents to yield 2.201 percent.
Canada's employment report for February is due on Friday.