(Adds analyst quotes and details on Bank of Canada rate decision and U.S. factory data and updates prices)
* Canadian dollar at C$1.3345, or 74.93 U.S. cents
* Loonie touches its weakest since Jan. 20 at C$1.3357
* Bond prices lower across much of the yield curve
* Canada-U.S. 2-year spread hits largest gap since January 2016
By Fergal Smith
TORONTO, March 1 (Reuters) - The Canadian dollar weakened on Wednesday against its U.S. counterpart to a fresh five-week low, pressured by increased chances of a Federal Reserve interest rate hike in March and a cautious tone from the Bank of Canada.
Canada's central bank held rates steady as it stayed focused on the "significant uncertainties" facing the economy.
"I think they will keep doing that until we get some clarity on U.S. policy," said Adam Cole, global head of FX strategy at RBC Capital Markets.
The bank said it was continuing to monitor the risks contained in its January Monetary Policy Report, which included a "protectionist tilt" in U.S. trade policy.
In a speech to Congress on Tuesday, U.S. President Donald Trump did not comment on a proposed border adjustment tax to boost exports over imports. Canadian dollar would be among the biggest losers if the border tax were implemented, analysts say. may be some disappointment in the market that the central bank "didn't manage to become a little bit more optimistic on the world," Cole said.
The perceived chances of a rate increase by the end of the year dipped to 29 percent from 35 before the announcement, data from the overnight index swaps market showed. BOCWATCH
In contrast, chances of a Federal Reserve rate hike in March have surged after hawkish comments from two Fed officials, while data showing U.S. factory activity surged to a 2-1/2-year high in February added to support for the U.S. dollar .DXY . 11:10 a.m. ET (1610 GMT), the Canadian dollar CAD=D4 was trading at C$1.3345 to the greenback, or 74.93 U.S. cents, weaker than Tuesday's close of C$1.3281, or 75.30 U.S. cents.
The currency's strongest level of the session was C$1.3285, while it touched its weakest since Jan. 20 at C$1.3357.
U.S. crude oil CLc1 prices were down 0.17 percent at $53.92 a barrel after data showed a build in U.S. crude stocks. O/R
Oil is one of Canada's major exports.
In domestic data, the current account deficit narrowed in the fourth quarter to C$10.73 billion, its lowest in more than five years. government bond prices were lower across much of the yield curve in sympathy with Treasuries.
The 10-year CA10YT=RR declined 52 Canadian cents to yield 1.694 percent, while the 2-year yield fell 7.6 basis points further below its U.S. equivalent to a spread of -53.4 basis points, its largest gap since January 2016.