* Loonie gains 0.3% against the greenback
* Canadian producer prices rise by 0.7% in July
* Price of U.S. oil increases 0.2%
* Canadian bond yields rise across a steeper curve
TORONTO, Aug 31 (Reuters) - The Canadian dollar strengthened against its broadly weaker U.S. counterpart on Monday as upbeat services sector data from China supported oil prices, with the loonie approaching a seven-month high it notched on Friday.
The U.S. dollar .DXY was set for a fourth straight month of losses after a U.S. Federal Reserve policy shift on inflation. price of oil, one of Canada's major exports, was underpinned by a 30% cut in Abu Dhabi crude supplies and data showing China's non-manufacturing PMI expanded at a solid rate in August. crude CLc1 prices were up 0.2% at $43.07 a barrel, while the Canadian dollar CAD= was trading 0.3% higher at 1.3052 to the greenback, or 76.62 U.S. cents. The currency, which on Friday touched a seven-month high at 1.3043, traded in a range of 1.3050 to 1.3104.
Producer prices in Canada rose by 0.7% in July from June, matching expectations, data from Statistics Canada showed. Friday, data showing a record surge in Canada's real gross domestic product in June supported the view that third-quarter economic growth will be rapid after a record slump in the second quarter. employment report for August is due on Friday, which could add to evidence of economic recovery. Analysts in a Reuters poll expect jobs to increase by 275,000.
Speculators have reduced bearish bets on the loonie, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of Aug. 25, net short positions had decreased to 29,318 contracts after reaching the highest since May at 33,587 in the prior week.
Canadian government bond yields were higher across a steeper curve, with the 10-year CA10YT=RR up 1.8 basis points at 0.651%. On Friday, the 10-year yield touched its highest intraday in nearly three months at 0.697%.