* Canadian dollar rises 0.4 percent against the greenback
* Price of U.S. oil rises 2.5 percent
* Canada manufacturing PMI falls to nearly 2-year low
* Canadian bond prices mixed across flatter yield curve
* Canada's 10-year yield hits its lowest in more than one year
By Fergal Smith
TORONTO, Jan 2 (Reuters) - The Canadian dollar strengthened against its broadly stronger U.S. counterpart on Wednesday, paring some of its 2018 decline as higher oil prices offset domestic data showing a slowdown in manufacturing growth.
The price of oil, one of Canada's major exports, climbed in choppy trading despite evidence of softer growth in Asia and Europe that could hurt demand for the commodity. U.S. crude oil futures CLc1 settled 2.5 percent higher at $46.54 a barrel "bounce in oil prices" has helped boost the Canadian dollar, said Erik Nelson, a currency strategist at Wells Fargo (NYSE:WFC). "CAD is a stand-out."
At 4:06 p.m. (2106 GMT), the Canadian dollar CAD=D4 was trading 0.4 percent higher at 1.3584 to the greenback, or 73.62 U.S. cents, the second-best performance among G10 currencies. The currency touched its strongest level since last Thursday at 1.3570.
Last year, the loonie posted its worst performance since 2015 as expectations dwindled for additional rate hikes in 2019 from the Bank of Canada. The central bank has worried that a plunge in oil prices since October could hurt Canada's economy. BOCWATCH
Data showed that Canada's manufacturing sector expanded in December at the slowest pace in nearly two years as production growth faltered and export orders stagnated. The IHS Markit Canada Manufacturing Purchasing Managers' index fell to a seasonally adjusted 53.6 last month, its lowest since January 2017, from 54.9 in November. government bond prices were mixed across a flatter yield curve, with the two-year CA2YT=RR down 0.5 Canadian cent to yield 1.865 percent and the 10-year CA10YT=RR rising 33 Canadian cents to yield 1.926 percent.
The 10-year yield hit its lowest intraday since December 2017 at 1.871 percent.
The country's employment report for December is due on Friday.