* Canadian dollar at C$1.2859, or 77.77 U.S. cents
* Bond prices mixed across the maturity curve
TORONTO, Aug 16 (Reuters) - The Canadian dollar strengthened to a seven-week high against its broadly weaker U.S. counterpart on Tuesday as oil rose and domestic data showed a rebound in factory sales.
Canadian factory sales increased 0.8 percent in June from May as sales of machinery and transportation equipment grew, according to Statistics Canada data. Economists had expected a 0.7 percent increase after sales fell 1 percent in May. rose to its highest in one month as the market rode optimism over potential producer action to prop up the market. U.S. crude CLc1 prices were up 0.57 percent to $46 a barrel. O/R
The U.S. dollar .DXY fell against a basket of major currencies, pressured by a moderation in underlying inflation that could further diminish prospects of a Federal Reserve interest rate increase this year. 9:28 a.m. EDT (1328 GMT), the Canadian dollar CAD=D4 was trading at C$1.2859 to the greenback, or 77.77 U.S. cents, stronger from Monday's close of C$1.2917, or 77.42 U.S. cents.
The currency's weakest level of the session was C$1.2933, while it touched its strongest since June 24 at C$1.2798.
Canadian government bond prices were mixed across the maturity curve, with the two-year CA2YT=RR bond down 1 Canadian cent to yield 0.554 percent and the benchmark 10-year CA10YT=RR rising 14 Canadian cents to yield 1.031 percent.
The curve flattened as the spread between the two-year and 10-year yields narrowed by 2 basis points to 47.7 basis points, indicating outperformance for longer-dated maturities. It was the narrowest gap for the spread since June 2008.
Canadian retail sales data for June and inflation data for July are awaited on Friday. ECONCA