* Canadian dollar at C$1.2806, or 78.09 U.S. cents
* Loonie touches its strongest since Feb. 28 at C$1.2782
* Bond prices lower across the yield curve
By Fergal Smith
TORONTO, April 3 (Reuters) - The Canadian dollar strengthened to a nearly five-week high against its U.S. counterpart on Tuesday as oil and stock prices rebounded after steep declines the day before, while investors grew more optimistic about the prospect of a NAFTA trade deal.
The United States, Mexico and Canada have made significant advances on reworking the North American Free Trade Agreement and ministers will meet in the coming days to determine the scope to agree on the basics of a deal, Mexico's economy minister said on Monday. there is a deal on NAFTA, we are likely to see the Canadian dollar rally fairly strongly," said Scott Smith, managing partner at Viewpoint Investment Partners. "The Bank of Canada will feel more apt to hike at upcoming meetings this year."
The central bank has raised its benchmark interest rate three times since July to 1.25 percent but has worried about uncertainties, including the outlook for trade.
U.S. stocks rallied after crashing through key technical levels in the previous session. Canada's commodity-linked currency tends to be sensitive to movement in stock prices that are influenced by the health of the global economy. price of oil, one of Canada's major exports, rose after its biggest one-day fall in almost a year the previous day. U.S. crude CLc1 prices settled 0.8 percent higher at $63.51 a barrel.
At 4 p.m. (2000 GMT), the Canadian dollar CAD=D4 was trading 0.8 percent higher at C$1.2806 to the greenback, or 78.09 U.S. cents. The loonie touched its strongest level since Feb. 28 at C$1.2782.
Data showing that sales of light vehicles in Canada dipped 0.6 percent in March added to signs the economy was on track for a weaker-than-expected first quarter. fiscal stimulus from major provinces is set to give Canada's economy a shot in the arm. government bond prices were lower across the yield curve in sympathy with U.S. Treasuries as demand faded for safe-haven assets and investors looked ahead to Friday's closely watched U.S. employment report. two-year CA2YT=RR dipped 3 Canadian cents to yield 1.795 percent and the 10-year CA10YT=RR declined 23 Canadian cents to yield 2.143 percent. On Friday, the 10-year yield touched its lowest intraday since Jan. 4 at 2.073 percent.
Canadian trade data for February is due on Thursday and the March employment report is due on Friday.