(Adds strategist comment, updates prices to close)
* Canadian dollar settles at C$1.3241, or 75.52 U.S. cents
* Bond prices lower across steeper yield curve
* 10-year yield touches almost four-week high at 1.257 percent
By Alastair Sharp
TORONTO, Oct 11 (Reuters) - The Canadian dollar on Tuesday reversed most of the gains it made against the greenback the previous day, as oil prices fell and investors boosted the U.S. currency on increased bets that the U.S. Federal Reserve will raise interest rates in December.
The Canadian dollar CAD=D4 settled at C$1.3241 to the greenback, or 75.52 U.S. cents, weaker than Monday's close of C$1.3175, or 75.90 U.S. cents, according to Reuters data.
Monday's gain was the loonie's biggest one-day rally since June, as oil surged and doubts grew over Republican presidential candidate Donald Trump's prospects to win the White House in the Nov. 8 election. Trump has said he would renegotiate or scrap the North American Free Trade Agreement if he is elected.
The loonie's official close on Friday was C$1.3285 to the greenback, or 75.27 U.S. cents. Monday was a market holiday in Canada.
"There's a risk aversion in the market," said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets. "I'm not sure whether it's anything more than position-squaring ahead of the Fed minutes tomorrow."
The U.S. dollar surged to a seven-month high against a major currency basket, and could push even higher if Wednesday's release of minutes from the Fed's latest monetary policy meeting confirms the market's December rate hike view.
Oil prices retreated from one-year highs after OPEC said it was trying to reach a global agreement to cap production for at least six months amid doubts about how much that would reduce a crude glut. O/R
The Canadian currency's strongest level of the session was C$1.3164, while its weakest was C$1.3274.
Against the euro, the loonie touched its strongest level since Sept. 9 at C$1.4602.
Canadian housing starts surged in September compared with August, the national housing agency reported on Tuesday. The seasonally adjusted annualized rate of housing starts rose to 220,617 units from a 184,201-unit rate in August. stronger-than-expected housing starts followed data on Friday that showed the economy created 67,200 jobs in September, far more than expected.
Speculators increased bearish bets on the Canadian dollar, Commodity Futures Trading Commission data showed on Friday. government bond prices fell across the yield curve, with the two-year CA2YT=RR off 2 Canadian cents to yield 0.603 percent and the benchmark 10-year CA10YT=RR down 28 Canadian cents to yield 1.200 percent.
The 10-year yield touched its highest level since Sept. 14 at 1.257 percent.