* Canadian dollar at C$1.3091, or 76.39 U.S. cents
* Loonie touches its strongest since July 11 at C$1.3086
* Bond prices lower across a flatter yield curve
* Canada-U.S. 2-year spread hits narrowest since July 9
TORONTO, July 25 (Reuters) - The Canadian dollar strengthened to a two-week high against its U.S. counterpart on Wednesday as the greenback broadly fell and the gap between Canadian and U.S. yields narrowed.
The gap between Canada's 2-year yield and its U.S. counterpart narrowed by 2.4 basis points to a spread of -62.5 basis points, its narrowest since July 9.
The smaller spread, which comes after recent stronger-than-expected domestic data, reduces the incentive for investors to buy higher-yielding bonds denominated in U.S. dollars.
The U.S. dollar .DXY fell against a basket of major currencies ahead of talks between U.S. President Donald Trump and European Commission President Jean-Claude Juncker that are expected to focus on trade. has threatened to impose tariffs on EU-made cars. He has also warned he would impose tariffs on Canadian autos. Autos are one of Canada's major exports.
Canada is also contending with slow-moving talks to revamp the North American Free Trade Agreement.
Trump told Mexico's president-elect in a letter that a quick renegotiation of NAFTA would bring more jobs for both countries, but warned of a very different route otherwise.
At 10:05 a.m. EDT (1405 GMT), the Canadian dollar CAD=D4 traded 0.5 percent higher at C$1.3091 to the greenback, or 76.39 U.S. cents. The currency touched its strongest since July 11 at C$1.3086.
The price of oil, another major Canadian export, rose for a second day after data showed U.S. crude inventories fell more than expected. U.S. crude CLc1 prices were up 0.3 percent at $68.69 a barrel. O/R
Canadian government bond prices were lower across a flatter yield curve, with the two-year CA2YT=RR down 3.5 Canadian cents to yield 2.021 percent and the 10-year CA10YT=RR falling 5 Canadian cents to yield 2.231 percent.