CANADA FX DEBT-C$ notches 1-month high as Bank of Canada turns more upbeat

(Adds economist quotes and details on Bank of Canada rate decision and U.S. crude inventory data and updates prices) * Canadian dollar at C$1.3443, or 74.39 U.S. cents * Loonie touches its strongest since April 24 at C$1.3430 * Bond prices mixed across a flatter yield curve * Chances of a rate hike this year more than double By Fergal Smith TORONTO, May 24 (Reuters) - Canada's dollar strengthened to a one-month high against its U.S. counterpart on Wednesday after the Bank of Canada was more upbeat about the economy than some investors expected and as major oil producers looked set to possibly extend production cuts.

The Bank of Canada held interest rates steady at 0.50 percent, as expected. It reiterated its position that excess capacity remains in the economy and wage growth is subdued, but noted strong spending by Canadians along with a housing boom and job growth.

"It's probably a bit more positive than many would have expected," said Doug Porter, chief economist at BMO Capital Markets.

"We're slowly but surely moving towards the day when the Bank (of Canada) might actually consider raising interest rates." Chances of an interest rate hike this year more than doubled from before the announcement to one-in-four, data from the overnight index swaps market showed.

Prices of oil, one of Canada's major exports, edged higher after U.S. data showed a bigger than expected draw in crude inventories. U.S. crude prices were up 0.08 percent to $51.51 a barrel.

Investors waited for news from Vienna, where ministers from the Organization of the Petroleum Exporting Countries and other nations were discussing whether to extend production cuts into the first quarter of 2018.

At 11:04 a.m. ET (1504 GMT), the Canadian dollar was trading at C$1.3443 to the greenback, or 74.39 U.S. cents, up 0.5 percent.

The currency's weakest level was C$1.3540, while it touched its strongest since April 24 at C$1.3430.

The loonie has recovered from a 14-month low of C$1.3793 set earlier this month, helped by a rally in oil prices and broader losses for the U.S. dollar amid diminishing expectations of a promised fiscal boost to the U.S. economy from President Donald Trump.

Canadian government bond prices were mixed across a flatter yield curve. The two-year dipped 3 Canadian cents to yield 0.719 percent, while the 10-year rose 8 Canadian cents to yield 1.505 percent.

The gap between the 2-year yield and the 10-year yield narrowed by 2.5 basis points to a spread of 78.6 basis points, as shorter dated maturities underperformed on the Bank of Canada's more upbeat tone.

(Reporting by Fergal Smith; Editing by Lisa Von Ahn and Tom Brown)