(Adds analyst quotes, updates prices)
* Canadian dollar settles at C$1.3071, or 76.51 U.S. cents
* Loonie touches its weakest since July 29 at C$1.3148
* Bond prices flat to lower across steeper maturity curve
By Fergal Smith
TORONTO, Aug 3 (Reuters) - The Canadian dollar edged higher against its broadly firmer U.S. counterpart on Wednesday as oil rallied and risk appetite improved.
Oil prices jumped after U.S. data revealed a larger-than-expected gasoline draw which offset a surprise build in crude stockpiles. U.S. crude oil futures CLc1 settled $1.32 higher at $40.83 a barrel. O/R
Canada is a major oil exporter.
Wall Street stabilized after losses on Tuesday, adding to support for the risk-sensitive loonie. Gains on Wall Street came as data showed U.S. private employers added 179,000 jobs in July, above economists' expectations. are now turning to the (U.S.) non-farm payrolls number on Friday, but for the time being we will see the Canadian dollar be driven by broader risk appetite in financial markets as well as oil and interest rate spreads, all of which are pointing to a higher Canadian dollar today," said Scott Smith, senior market analyst at Cambridge Global Payments.
The Canada-U.S. two-year bond spread has compressed from -60 basis points in January to -11 basis points on Wednesday, reducing the premium that investors earn on U.S. bonds.
The Canadian dollar CAD=D4 ended the day at C$1.3071 to the greenback, or 76.51 U.S. cents, stronger than Tuesday's close of C$1.3102, or 76.32 U.S. cents.
The currency's strongest level of the session was C$1.3064, while it touched its weakest since July 29 at C$1.3148.
The Canadian dollar is expected to weaken slightly against the U.S. dollar over the coming months, a Reuters poll found, with a sluggish domestic economy and lower oil prices seen weighing on the commodity-linked currency. government bond prices were flat to lower across the maturity curve, with the two-year CA2YT=RR bond unchanged to yield 0.558 percent and the benchmark 10-year CA10YT=RR falling 22 Canadian cents to yield 1.100 percent.
The curve steepened as the spread between the 2-year and 10-year yields widened by 2.3 basis points to 54.2 basis points, indicating underperformance for longer-dated maturities. Last week the spread touched its narrowest since June 2008 at 48.3 basis points.
Canada's international trade data for June and employment report for July are awaited on Friday. ECONCA