* Canadian dollar at C$1.2680, or 78.86 U.S. cents
* Loonie touches its weakest since Aug. 16 at C$1.2723.
* Bond prices lower across a steeper yield curve
TORONTO, Oct 25 (Reuters) - The Canadian dollar weakened to a 10-week low against its U.S. counterpart on Wednesday, before paring some losses, as investors braced for an interest rate decision by the Bank of Canada. After back-to-back interest rate increases in July and September, the central bank was expected to stay put on Wednesday as economic data shows the pace of growth slowing in the third quarter. Tighter mortgage rules slowing the housing market and uncertainty about the North American Free Trade Agreement could weigh on the outlook for the economy.
At 9:29 a.m. ET (1329 GMT), the Canadian dollar was
trading at C$1.2680 to the greenback, or 78.86 U.S. cents, down 0.1 percent. The currency's strongest level of the session was C$1.2669, while it touched its weakest since Aug. 16 at C$1.2723. The price of oil, one of Canada's major exports, pulled back from near a four-week high. It had gained ground on Tuesday after top exporter Saudi Arabia said it was determined to end a crude glut that has been weighing on the market for three years.
U.S. crude prices were down 0.50 percent at $52.21 a
barrel. Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries after U.S. data pointed to strong business spending.
The two-year fell 2.5 Canadian cents to yield 1.507 percent and the 10-year declined 27 Canadian
cents to yield 2.098 percent. Canada's 2-year yield fell 1.7 basis points further below its U.S. equivalent to a spread of -10 basis points.
(Reporting by Fergal Smith; Editing by Meredith Mazzilli)