* Canadian dollar at C$1.2977, or 77.06 U.S. cents
* Loonie touches its weakest since March 21 at C$1.3068
* Price of U.S. oil rises 1.2 percent
* Bond prices higher across the yield curve
By Fergal Smith
TORONTO, June 5 (Reuters) - The Canadian dollar weakened to a 2-1/2-month low against its U.S. counterpart on Tuesday, pressured by the prospect of U.S. President Donald Trump moving toward bilateral discussions on trade with Canada and Mexico.
Trump may seek separate talks in a bid to get individual trade deals with the two countries, White House economic adviser Larry Kudlow said. is almost like starting from scratch," said Mazen Issa, senior fx strategist at TD Securities. "More uncertainty is not good for businesses."
The Bank of Canada has worried that trade uncertainty is holding back business investment. Canada sends about 75 percent of its exports to the United States so its economy could be hurt if a deal on NAFTA is not reached.
The European Union does not expect any breakthrough on steel and aluminium tariffs imposed by the United States on the EU and Canada at talks of G7 leaders in Canada later this week, a senior EU official said. 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading 0.4 percent lower at C$1.2977 to the greenback, or 77.06 U.S. cents. It touched its weakest since March 21 at C$1.3068.
Canadian labor productivity fell by 0.3 percent in the first quarter, reflecting a deceleration in business output from the previous quarter, while hours worked accelerated, Statistics Canada said. crude oil futures CLc1 settled 1.2 percent higher at $65.22 a barrel, reversing its earlier losses.
Oil, one of Canada's major exports, had been pressured by a report that the U.S. government had asked Saudi Arabia and other major exporters to increase oil output. government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 3.5 Canadian cents to yield 1.917 percent and the 10-year CA10YT=RR climbed 23 Canadian cents to yield 2.251 percent.
Canada's trade report for April is due on Wednesday and the May employment report is due on Friday.