* Canadian dollar at C$1.2591, or 79.42 U.S. cents
* Loonie touches strongest since Oct. 20 at C$1.2580
* Bond prices lower across the yield curve
* Canada-US 10-yr spread hits narrowest since Nov. 16
TORONTO, Dec 28 (Reuters) - The Canadian dollar strengthened to a two-month high against its U.S. counterpart on Wednesday, as the greenback broadly fell and commodity markets held on to recent gains.
At 9:08 a.m. ET (1408 GMT), the Canadian dollar CAD=D4 was trading at C$1.2591 to the greenback, or 79.42 U.S. cents, up 0.5 percent.
The currency, which had been trading in range roughly between 1.26 and 1.29 over the past two months, touched its strongest since Oct. 20 at C$1.2580.
The U.S. dollar .DXY held near a one-month low against a basket of major currencies as the latest jobless claims data suggesting a firm labor market was offset by advance trade balance figures that pointed a widening trade gap in November. have also been weighing prospects for global central banks to tighten monetary conditions, lessening the divergence between the U.S. Federal Reserve's policy and the rest of the world. Bank of Canada raised interest rates in July, and then again in September, for the first time in seven years. Money markets expect three further hikes in 2018, which is more than is expected from the Fed. BOCWATCH FEDWATCH
The price of oil, one of Canada's major exports, stood near its highest in two and a half years, supported by strong data from top importer China amid thin trading activity ahead of the New Year weekend. crude CLc1 prices were up 0.05 percent at $59.67 a barrel.
Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR fell 3 Canadian cents to yield 1.679 percent and the benchmark 10-year CA10YT=RR declined 30 Canadian cents to yield 2.016 percent.
The gap between Canada's 10-year yield and its U.S. counterpart narrowed by 2.3 basis points to a spread of -41.1. basis points, its narrowest since Nov. 16.