* Canadian dollar at C$1.2895, or 77.55 U.S. cents
* Loonie touches its weakest since July 12 at C$1.2908
* Bond prices higher across the yield curve
* Canadian yields fall further below U.S. Treasury yields
TORONTO, Oct 27 (Reuters) - The Canadian dollar weakened to a more than three-month low against a broadly firmer greenback on Friday as the countrys yields on government bonds fell further below those of U.S. Treasuries. The gap between Canada's two-year yield and its U.S. counterpart widened by 2.3 basis points to a spread of -18.5 basis points, its widest since July 12, when the Bank of Canada raised interest rates for the first time in nearly seven years. The central bank also hiked in September, but it left its benchmark interest rate unchanged at 1 percent on Wednesday. In cautiously considering another rate move, the bank said it would observe how the economy adjusts to higher interest rates, tighter mortgage rules and uncertainty about U.S. trade policy. 1/8nL2N1N00YM Perceived chances of another hike by the end of the year have fallen to 24 percent from 37 percent before the rate decision, the overnight index swaps market shows.
At 9:08 a.m. ET (1308 GMT), the Canadian dollar was
trading at C$1.2895 to the greenback, or 77.55 U.S. cents, down 0.4 percent. It touched its weakest since July 12 at C$1.2908.
The U.S. dollar climbed against a basket of major
currencies, supported by strong U.S. corporate earnings and investors bets that interest rates in the United States would rise faster than in Europe. Data showed that the U.S. economy unexpectedly maintained a brisk pace of growth in the third quarter as an increase in inventory investment and a smaller trade deficit offset a hurricane-related slowdown in consumer spending and a decline in construction.
U.S. crude prices were down 0.34 percent at $52.46 a
barrel. Prices of oil, one of Canada's major exports, have been hovering near their highest levels for this year amid recent signs of a tightening market, talk of an extension of production cuts and tensions in Iraq. Canadian government bond prices were higher across the yield
curve, with the two-year up 3.5 Canadian cents to yield 1.439 percent and the 10-year rising 18
Canadian cents to yield 2.012 percent. Bonds got a boost on Thursday after the after the European Central Bank extended its bond purchases stimulus until at least September next year.
(Reporting by Fergal Smith; Edoiting by W Simon)