* Canadian dollar at C$1.2886, or 77.60 U.S. cents
* Price of oil rises 2.5 percent
* Bond prices lower across the yield curve
TORONTO, May 9 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, rebounding from a nearly seven-week low the day before, as the price of oil surged after U.S. President Donald Trump abandoned a nuclear deal with Iran.
Trump announced on Tuesday the "highest level" of sanctions against the OPEC member, raising the risk of conflict in the Middle East and casting uncertainty over the supply of oil, one of Canada's major exports. crude CLc1 prices were up 2.5 percent at $70.75 a barrel.
At 9:15 a.m. EDT (1315 GMT), the Canadian dollar CAD=D4 was trading 0.5 percent higher at C$1.2886 to the greenback, or 77.60 U.S. cents.
The currency traded in a range of C$1.2870 to C$1.2975. On Tuesday, it hit its weakest since March 21 at C$1.2998.
Gains for the loonie came as Mexico launched a counterproposal to U.S. demands to toughen automotive industry content rules under the North American Free Trade Agreement (NAFTA). sends 75 percent of its exports to the United States. Its economy could benefit if a deal to revamp NAFTA is reached.
The U.S. dollar .DXY pared some recent gains as data showed a smaller-than-expected increase in U.S. producer prices in April. value of Canadian building permits rose 3.1 percent in March, more than economists' forecasts for a gain of 2.0 percent, on increased plans to build apartment buildings in the provinces of Quebec and British Columbia, data from Statistics Canada showed. government bond prices were lower across the yield curve in sympathy with U.S. bonds ahead of a U.S. 10-year Treasury note auction.
The Canadian 10-year CA10YT=RR declined 27 Canadian cents to yield 2.384 percent. It touched its highest since Feb. 15 at 2.394 percent.
Canada's jobs report for April is due on Friday.