* Canadian dollar at C$1.3152, or 76.03 U.S. cents
* Bond prices higher across flatter yield curve
TORONTO, Sept 26 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday as oil prices rebounded, but gains were restrained as investors turned cautious ahead of the first U.S. presidential debate.
Modest gains for the loonie followed losses on Friday as oil tumbled and domestic inflation and retail sales data disappointed.
Canada's annual inflation rate in August dipped to a 10-month low, and retail sales unexpectedly fell in July, reviving talk that the Bank of Canada was more inclined to ease monetary policy than tighten. implied probability of a Bank of Canada rate cut by mid-2017 has increased to more than 40 percent from less than 20 percent before the inflation report, overnight index swaps data shows. BOCWATCH
U.S. crude CLc1 prices were up 2.02 percent at $45.38 a barrel as the world's largest producers gathered in Algeria to discuss ways to support the market. O/R
European and Asian shares retreated, with investors focused on how U.S. Republican presidential candidate Donald Trump would fare in the debate against Democrat Hillary Clinton. diplomats are fanning out across the United States to talk up the benefits of trade with state and local leaders and counter what senior officials see as a worrying mood of protectionism swirling through the U.S. election campaign. 9:06 a.m. EDT (1306 GMT), the Canadian dollar CAD=D4 was trading at C$1.3152 to the greenback, or 76.03 U.S. cents, slightly stronger than Friday's close of C$1.3171, or 75.92 U.S. cents.
The currency's strongest level of the session was C$1.3148, while it touched its weakest since Wednesday at C$1.3200.
Speculators pared bullish bets on the Canadian dollar for the third straight week, Commodity Futures Trading Commission data showed on Friday. Net long Canadian dollar positions dipped to 16,303 contracts in the week ended Sept. 20 from 17,058 contracts in the prior week. government bond prices were higher across a flatter yield curve, with the two-year CA2YT=RR up 9 Canadian cents to yield 0.522 percent and the benchmark 10-year CA10YT=RR rising 62 Canadian cents to yield 1.035 percent.
The 10-year yield has tumbled from a 1.281 percent peak in mid-September. Earlier in the session, it hit its lowest since Sept. 8 at 0.990 percent.