Canadian dollar gains as bets rise on January rate hike

(New throughout, updates prices, market activity and comments)

* Canadian dollar strengthens 0.3% against the greenback

* Chances of a BoC rate hike next week rise to nearly 70%

* Price of U.S. oil increases 0.6%

* Canadian 10-year yield rises to highest level since Nov. 24

By Fergal Smith

TORONTO, Jan 17 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday, as investors raised bets on the Bank of Canada hiking interest rates as early as next week after a business survey by the central bank pointed to rising wage pressures.

Canadian firms see labor shortages intensifying and wage pressure increasing, with strong demand growth and supply chain constraints putting upward pressure on prices, a Bank of Canada survey said.

The central bank Link in December reiterated its guidance that the start of the tightening cycle could come in April but has since become more worried about the inflation outlook.

"I think there is too much evidence of building inflationary pressures for the Bank of Canada to wait another full quarter to lift rates," said Andrew Kelvin, chief Canada strategist at TD Securities.

Chances of a rate hike at the Jan. 26 policy announcement rose to nearly 70% from 60% before the survey, money market data showed.

The Canadian dollar CAD= was trading 0.3% higher at 1.2517 per greenback, or 79.89 U.S. cents, adding to last week's gains. It traded on Monday in a range of 1.2501 to 1.2557.

Separate data added to recent evidence that the Canadian economy strengthened in the final quarter of last year.

Canadian factory sales rose 2.6% in November from October and home sales were up 0.2% in December from November even as supply fell to a record low level.

The price of oil CLc1 , one of Canada's major exports, rose 0.6% as investors expected that global supply will remain tight despite a rise in Libyan output.

Canadian government bond yields were higher across a flatter curve. The 10-year CA10YT=RR touched its highest level since Nov. 24 at 1.819% before dipping to 1.804%, up 3.1 basis points on the day.
Reporting by Fergal Smith Editing by Chizu Nomiyama and David Gregorio

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