(Adds strategist quote, updates prices) * Canadian dollar rises 0.3% against the greenback * Canada posts May trade surplus of C$762 million * Price of U.S. oil increases 1.9% * Canada-U.S. 2-year spread hits narrowest since February 2018 By Fergal Smith TORONTO, July 3 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, approaching a near eight-month high notched last week, as oil prices rose and domestic data showed a surprise swing in the trade balance to a surplus in May. Rising exports of motor vehicles, aircraft and energy products helped Canada post a C$762 million trade surplus in goods in May, Statistics Canada reported. Analysts had forecast a shortfall of C$1.50 billion, while April's deficit was revised slightly wider to C$1.08 billion. The trade data gave the loonie a small lift in "very quiet trading" ahead of the U.S. Independence Day holiday on Thursday, said Eric Theoret, a currency strategist at Scotiabank. The price of oil, one of Canada's major exports, rebounded after a steep fall in the previous session when a decision by OPEC and its allies to extend output cuts failed to counter investors' concerns about the slowing global economy. U.S. crude oil futures settled 1.9% higher at $57.34 a barrel. At 3:41 p.m. (1941 GMT), the Canadian dollar was trading 0.3% higher at 1.3064 to the greenback, or 76.55 U.S. cents. The currency, which last Friday touched nearly an eight-month high at 1.3060, traded in a range of 1.3062 to 1.3119. The loonie has benefited in recent weeks from data showing a recovery in the domestic economy, which could keep the Bank of Canada on hold over the coming months even if the Federal Reserve cuts interest rates as the market expects. Money markets see about a 30% chance of a Bank of Canada interest rate cut this year. A clue to the direction of Canadian interest rates could come from Canada's jobs report for June, which is due on Friday. Canadian government bond prices were mixed across a flatter yield curve, with the two-year down 2 Canadian cents to yield 1.493% and the 10-year rising 13 Canadian cents to yield 1.453%. The gap between Canada's two-year yield and its U.S. equivalent narrowed by 1.5 basis points to a spread of 26.8 basis points in favor of the U.S. bond, its narrowest gap since February last year. (Reporting by Fergal Smith; Editing by Peter Cooney)
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