* Canadian dollar at C$1.3048, or 76.64 U.S. cents
* Loonie touches its strongest since Oct. 19 at C$1.3019
* Bond prices higher across a flatter yield curve
TORONTO, Jan 17 (Reuters) - The Canadian dollar strengthened
to a nearly three-month high against its U.S. counterpart on
Tuesday, one day before a Bank of Canada interest rate decision,
as oil rallied and a New Year selloff of the greenback deepened.
The U.S. dollar fell along with stocks and bond
yields after U.S. President-elect Donald Trump said the strong
greenback was hurting the nation's competitiveness.
U.S. crude prices were up 1.74 percent at $53.28 a
barrel, supported by a falling U.S. dollar and Saudi Arabia's
pledge to adhere to OPEC's commitment to cut output.
At 9:02 a.m. ET (1402 GMT), the Canadian dollar was
trading at C$1.3048 to the greenback, or 76.64 U.S. cents, much
stronger than Monday's close of C$1.3187, or 75.83 U.S. cents.
The currency's weakest level of the session was C$1.3190,
while it touched its strongest since Oct. 19 at C$1.3019.
Recent domestic data has shown a surge in jobs in December
and the first trade surplus in more than two years in November,
while a Bank of Canada survey last week pointed to improving
business conditions.
Still, the possibility that Trump will follow through on
protectionist rhetoric has clouded the outlook for Canada's
economy, with nearly half of economists polled recently paring
back growth forecasts.
Analysts expect the Bank of Canada to announce on Wednesday
that it would leave its policy rate on hold at 0.5 percent.
Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The two-year
rose 3 Canadian cents to yield 0.778 percent, and the 10-year
climbed 43 Canadian cents to yield 1.645 percent.
The spread between the 2-year and 10-year yields narrowed by
3.6 basis points to 86.7 basis points, its smallest gap since
Nov. 29, as longer-dated maturities outperformed.
Lending activity to small businesses in Canada picked up in
November on gains in the manufacturing and retail sectors, a
report showed, suggesting companies felt more confident with the
U.S. election out of the way.
The PayNet Canadian Small Business Lending Index rose to
119.9 from 116.5 in October, while lending to medium-sized
companies increased to 218.3 from 211.3.
(Reporting by Fergal Smith; Editing by Lisa Von Ahn)