* Canadian dollar at C$1.3025, or 76.78 U.S. cents
* Price of U.S. oil rises 2.1 percent
* Bond prices mixed across a steeper yield curve
* 10-year yield touches its highest in nearly seven weeks
By Fergal Smith
TORONTO, July 30 (Reuters) - The Canadian dollar strengthened to a nearly seven-week high against its U.S. counterpart on Monday, boosted by higher oil prices and optimism that progress could be made in talks to revamp the NAFTA trade pact.
Negotiations to update the North American Free Trade Agreement had stalled since June when the United States imposed tariffs on Mexican and Canadian steel and aluminum. But Mexico and the United States have agreed to step up talks in hopes of reaching an agreement on major issues by August. negotiations have been reinvigorated," said Scott Smith, managing partner at Viewpoint Investment Partners. "We are seeing some of this NAFTA risk premium in the Canadian dollar evaporate as we get closer to a potential deal."
The price of oil, one of Canada's major exports, rose as traders kept the focus on supply disruptions and the possible hit to crude output from U.S. sanctions on Iran. U.S. crude oil futures CLc1 settled 2.1 percent higher at $70.13 a barrel. for the loonie came as the U.S. dollar .DXY lost ground against a basket of major currencies ahead of a policy decision by the Bank of Japan on Tuesday that could mark a change to its monetary easing policy. 3:30 p.m. (1930 GMT), the Canadian dollar CAD=D4 was trading 0.2 percent higher at C$1.3025 to the greenback, or 76.78 U.S. cents.
The currency, which rose 0.7 percent last week, touched its strongest level since June 14 at C$1.2995.
Adjustment of trading positions ahead of Canada's monthly gross domestic product data, which is due on Tuesday, could have added to support for the loonie.
"There have been some whispers that the GDP report could be on the stronger side for May in Canada," Smith said.
Still, Canada is finding it harder to attract the foreign investment in its bonds and stocks that it needs to finance a current account deficit. trade data for June is due on Friday.
Canadian government bond prices were mixed across a steeper yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 1 Canadian cent to yield 2.058 percent and the 10-year CA10YT=RR fell 6 Canadian cents to yield 2.303 percent.
The 10-year yield touched its highest since June 13 at 2.336 percent.