* Canadian dollar at C$1.3138, or 76.12 U.S. cents
* Price of U.S. oil rises 0.3 percent
* Bond prices higher across a flatter yield curve
* 10-year yield posts a two-week high intraday at 2.204 percent
By Fergal Smith
TORONTO, July 3 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday as oil prices rose to 3-1/2-year highs and domestic manufacturing data supported the view that the Bank of Canada will hike interest rates next week.
At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading 0.4 percent higher at C$1.3138 to the greenback, or 76.12 U.S. cents. The currency traded in a range of C$1.3133 to C$1.3207.
Growth in the Canadian manufacturing sector accelerated in June to its fastest pace in more than seven years, data showed. The IHS Markit Canada Manufacturing Purchasing Managers' Index rose to a seasonally adjusted 57.1 last month from 56.2 in May. of domestic data has come despite slow-moving talks to revamp the North American Free Trade Agreement and a trade dispute with the United States.
The White House said on Monday that Canada's decision to enact tariffs on C$16.6 billion worth of American goods in retaliation for U.S. tariffs on imports of Canadian steel and aluminum would not help its economy. have been climbing the wall of worry since April and the manufacturing sector in Canada is still posting multi-year strength levels," said Michael Goshko, corporate risk manager at Western Union Business Solutions. "The Bank of Canada has got to pay attention to something like that."
Perceived chances of an interest rate hike at the July 11 announcement have jumped to nearly 80 percent from about 50 percent before hawkish comments by Bank of Canada Governor Stephen Poloz at a news conference last week. Friday, when domestic data showed a surprise expansion of the domestic economy in April and business optimism, the loonie touched its strongest in two weeks at C$1.3131.
U.S. crude oil futures CLc1 settled 0.3 percent higher at $74.14 a barrel. Oil is one of Canada's major exports. O/R
The U.S. dollar .DXY fell nearly 0.5 percent against a basket of major currencies ahead of the July 4 Independence Day holiday, while stocks on Wall Street were pressured by declines for technology stocks. government bond prices were higher across a flatter yield curve, with the two-year CA2YT=RR up 2.5 Canadian cents to yield 1.898 percent and the 10-year CA10YT=RR rising 22 Canadian cents to yield 2.142 percent.
The 10-year yield touched its highest intraday level since June 18 at 2.204 percent.
Canada's employment report for June and trade data for May are due out on Friday.