* U.S. dollar up 0.3 percent at C$1.3176
* Canada factory sales rose 1.4 percent in May from April
* Spread between the U.S. Canadian 10-year yields widens
* Canadian government bond prices higher across yield curve
By Gertrude Chavez-Dreyfuss
July 17 (Reuters) - The Canadian dollar dropped on Tuesday, as the U.S. dollar rose across the board after Federal Reserve Chairman Jerome Powell struck a bullish tone in prepared remarks on the U.S. economy before a congressional committee.
The Canadian currency touched session lows against the greenback following release of Powell's testimony, nearing a two-week trough hit last week.
Powell, in testimony to the Senate Banking Committee, said the U.S. economy is on the cusp of "several years" where the job market remains strong and inflation stays around the Fed's 2 percent target. He discounted the risk that a trade war may throw a global recovery off track. we think the Chairman struck an upbeat tone that has been reflected in both the Fed's economic projections and Fed speak since the spring," said Marvin Loh, senior global market strategist, at BNY Mellon.
"However, given that the Fed will be faced with the neutral rate sometime in 2019, the market's concerns over a pause, or even an end to the hiking cycle is logical in our view.
In late trading, the U.S. dollar was up 0.3 percent against its Canadian counterpart at C$1.3186 CAD=D3 . So far this year, the Canadian dollar is down 4.8 percent against a strong U.S. currency.
The Canadian dollar was flat against the euro, which last traded at C$1.5378 EURCAD= . Sterling, however, fell 0.5 percent to C$1.72978 GBPCAD= .
The U.S. dollar, meanwhile, was up 0.5 percent against a basket of six major currencies at 94.953 .DXY .
Data showing Canada's factory sales rose 1.4 percent in May from April trimmed the Canadian currency's decline versus the greenback, but that had a brief impact. outlook for the Canadian dollar remained negative, analysts said, even though the Bank of Canada raised interest rates last week for the fourth time since July 2017, as the market has yet to fully price in the impact of global trade tensions.
"Domestic rate expectations have softened modestly and yield spreads have widened in a CAD-negative manner," said Eric Theoret, currency strategist at Scotiabank in Toronto.
The spread between the U.S. 10-year Treasury and Canadian 10-year yields US10CA10=RR widened to nearly 76 basis points on Tuesday in favor of the U.S. dollar.
Meanwhile, Canadian government bond prices were higher across much of the yield curve.
The two-year yield CA2YT=RR was down slightly at 1.921 percent, from 1.929 percent late on Monday, while the 10-year CA10YT=RR slipped to 2.126 percent from Monday's 2.138 percent.