* Canadian dollar at C$1.2903, or 77.50 U.S. cents
* Loonie touches its strongest since June 6 at C$1.2895
* Bond prices lower across steeper yield curve
* Canada-U.S. 10-year spread hits narrowest since Feb. 15
TORONTO, Aug 28 (Reuters) - The Canadian dollar strengthened to a nearly three-month high against its U.S. counterpart on Tuesday on the prospect of Canada reaching a deal this week to overhaul the North American Free Trade Agreement.
U.S. Treasury Secretary Steve Mnuchin said he believed the United States can reach a trade deal with Canada this week after coming to an agreement with Mexico. sends about 75 percent of its exports to the United States so its economy could benefit if talks with the United States and Mexico lead to a trilateral trade deal.
Canadian Foreign Minister Chrystia Freeland will travel to Washington on Tuesday to continue negotiations. A spokesman for Freeland said on Monday that Canada would only sign a new agreement that is good for the country. of Canadian auto-parts manufacturers rallied on Monday even as U.S. President Donald Trump threatened he could put tariffs on Canadian-made cars if a three-way deal could not be reached. 9:05 a.m. (1305 GMT), the Canadian dollar CAD=D4 was trading 0.5 percent higher at C$1.2903 to the greenback, or 77.50 U.S. cents. The currency touched its strongest since June 6 at C$1.2895.
The price of oil, one of Canada's major exports, rose towards its highest since early July, on evidence of still-modest increases in output from OPEC and improving Chinese refinery demand.
U.S. crude CLc1 prices were up 0.1 percent at $68.95 a barrel.
Canadian government bond prices were lower across a steeper yield curve, with the two-year CA2YT=RR down 2.5 Canadian cents to yield 2.153 percent and the 10-year CA10YT=RR falling 24 Canadian cents to yield 2.326 percent.
The gap between Canada's 10-year yield and its U.S. equivalent narrowed by 0.8 points to a spread of 54.3 basis points in favor of the U.S. bond, its smallest gap since Feb. 15.
Canada's gross domestic product data for the second quarter is due on Thursday.