* Canadian dollar at C$1.3050, or 76.63 U.S. cents
* Price of U.S. oil falls 0.6 percent
* Bond prices higher across flatter yield curve
* Canada's 10-year yield hits a five-week low at 2.218 percent
By Fergal Smith
TORONTO, Aug 31 (Reuters) - The Canadian dollar weakened to a one-week low against its U.S. counterpart on Friday as investor optimism dimmed that a deal to revamp the NAFTA trade pact would be reached.
At 3:56 p.m. EDT (1956 GMT), the Canadian dollar CAD=D4 was trading 0.5 percent lower at C$1.3050 to the greenback, or 76.63 U.S. cents. The Canadian currency also touched its weakest intraday level since Aug. 24 at C$1.3089.
The mood of talks between Ottawa and Washington to update the North American Free Trade Agreement were soured by President Donald Trump's comments that a pact would be on U.S. terms while Canada stood firm against signing "just any deal." Trade Representative Robert Lighthizer said in a statement that U.S. officials would resume talks with their Canadian counterparts next Wednesday with the aim of getting a deal all three countries could sign. Foreign Minister Chrystia Freeland was due to hold a news conference to discuss the talks at 4:30 p.m. EDT.
"It seems that the market is pricing out the optimism that it had earlier in the week," said Bipan Rai, executive director and North America head, FX Strategy at CIBC Capital Markets.
The loonie on Tuesday hit C$1.2887 - its strongest level in nearly three months - as investors bet that a deal would be done by a Friday deadline. For the week, it was on track to fall 0.2 percent.
Canada sends about 75 percent of its exports to the United States, so its economy could be hurt if a deal is not reached.
On Thursday, data showed that the Canadian economy expanded in the second quarter at the fastest pace in a year as exports climbed, but the improved growth was not expected to trigger an interest hike next week from the Bank of Canada. price of oil, one of Canada's major exports, fell as concerns over the impact of a trade war depressed sentiment. U.S. crude oil futures CLc1 settled down 0.6 percent at $69.80 a barrel. O/R
Speculators have cut bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of Aug. 29, net short positions had fallen to 24,789 contracts from 27,021 a week earlier.
Canadian government bond prices were higher across a flatter yield curve, with the 10-year CA10YT=RR rising 38 Canadian cents to yield 2.228 percent. The 10-year yield hit its lowest intraday since July 25 at 2.218 percent.