C$ weakens from 10-month high as oil falls

TORONTO (Reuters) - The Canadian dollar hit a 10-month high on Tuesday but then fell against its U.S. counterpart as lower oil prices and a sell-off in stocks weighed on the risk-sensitive commodity-linked currency. Oil fell as rising output from the Middle East and North Sea renewed concerns about global oversupply while weak Chinese factory activity worsened the demand outlook. U.S. crude prices were down 0.58 percent to $44.52 a barrel. [O/R] European financial stocks fell after a string of weak first-quarter earnings reports from banks, while yen strength threw an uncomfortable spotlight on central banks' attempts to boost growth through aggressive policy easing. At 9:26AM EDT (1326 GMT), the Canadian dollar was trading at C$1.2624 to the greenback, or 79.21 U.S. cents, weaker than Monday's close of C$1.2536, or 79.77 U.S. cents. The currency's weakest level was C$1.2625, while it touched its strongest since June 30 at C$1.2461. The pullback for the loonie came as fellow commodity currency the Australian dollar tumbled after the Reserve Bank of Australia surprised some by cutting its cash rate to a record low. Bank of Canada Governor Stephen Poloz will participate at 12:30 p.m. EDT (1630 GMT) in a panel at the Milken Institute in Los Angeles, entitled "Monetary Policy: Out of Ammunition?" Poloz has said in the past that the idea that monetary policy is not working any more is a myth. The two-year price rose 5.5 Canadian cents to yield 0.663 percent and the benchmark 10-year climbed 65 Canadian cents to yield 1.468 percent. The curve flattened, as the spread between the 2-year and 10-year yields narrowed by 4.2 basis points, indicating outperformance for longer-dated maturities. Canada's trade report for March is awaited on Wednesday, while the nation's April employment report is due on Friday. (Reporting by Fergal Smith Editing W Simon)