* Canadian dollar at C$1.3009, or 76.87 U.S. cents
* Loonie touches its weakest level since March 21 at C$1.3047
* Bond prices higher across a flatter yield curve
* 10-year yield touches a near six-week low at 2.241 percent
TORONTO, May 29 (Reuters) - The Canadian dollar weakened to a more than two-month low against its U.S. counterpart on Tuesday as oil prices fell and the greenback broadly rose, while investors weighed a decision by Canada's government to purchase a major oil pipeline project.
The Canadian government said it will buy Kinder Morgan 's Trans Mountain pipeline expansion for C$4.5 billion. Kinder Morgan (NYSE:KMI) has been frustrated with delays caused by British Columbia's government, which is concerned about possible oil spills. price of oil, one of Canada's major exports, was pressured by expectations that Saudi Arabia and Russia could pump more crude to compensate for a potential supply shortfall. crude CLc1 prices were down 1.0 percent at $67.18 a barrel.
The U.S. dollar .DXY rose against a basket of major currencies after a sell-off in Italy's debt market drove investors to dump the euro. 9:09 a.m. EDT (1309 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent lower at C$1.3009 to the greenback, or 76.87 U.S. cents. The currency touched its weakest level since March 21 at C$1.3047.
Losses for the loonie came ahead of a Bank of Canada interest rate decision on Wednesday. The central bank will probably hold interest rates steady as indebted consumers and uncertain trade policy necessitate caution, a Reuters poll predicted. President Donald Trump is running out of time to deliver a revamp of the North American Free Trade Agreement (NAFTA) he promised for this year, and people involved in the talks say the crunch is largely of his administration's own making. sends about 75 percent of its exports to the United States, so its economy could be hurt if NAFTA collapses.
Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries, as Italian political uncertainty bolstered demand for safe-haven assets.
The 10-year CA10YT=RR climbed 37 Canadian cents to yield 2.263 percent. The yield touched its lowest intraday since April 18 at 2.241 percent.