Market News

* Canadian dollar strengthens 0.4% against the greenback
    * Price of U.S. oil increases 0.9%
    * Canadian factory sales fall 1.5% in July
    * Canadian 10-year yield rises 1.1 basis points to 1.232%

    TORONTO, Sept 14 (Reuters) - The Canadian dollar on Tuesday
strengthened against its U.S. counterpart for a second day as
oil prices rose and data showing softer U.S. inflation weighed
on the greenback.
    The price of oil, one of Canada's major exports, hit a
six-week high as Hurricane Nicholas weakened into a tropical
storm, bringing the threat of widespread floods and power
outages to Texas and Louisiana, and as the International Energy
Agency forecast a big demand rebound for the rest of the year.
            
    U.S. crude        prices were up 0.9% at $71.05 a barrel,
while the U.S. dollar        fell against a basket of major
currencies after data showed underlying U.S. consumer prices
increased at their slowest pace in six months in August,
suggesting that inflation had probably peaked.             
    Investors have been concerned that a sustained rise in
inflation could push the Fed into tightening policy earlier than
signaled.
    The Canadian dollar        was trading 0.4% higher at 1.2602
to the greenback, or 79.35 U.S. cents, adding to its gains on
Monday. It traded in a range of 1.2600 to 1.2664.
    In domestic data, factory sales decreased by 1.5% in July
from June, data from Statistics Canada showed. That was a bigger
decline than analysts expected but the previous month was
revised higher to show a 3.6% gain.             
    Canada's inflation report for August is due on Wednesday and
could offer clues on the Bank of Canada policy outlook.
    Canadian government bond yields edged higher across much of
a steeper curve, with the 10-year             up 1.1 basis
points at 1.232%.

 (Reporting by Fergal Smith, Editing by Nick Zieminski)