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* C$ unable to build on momentum made after Fed rate cut
* Sagging oil prices ahead of OPEC meeting weigh on C$
* Weak domestic data keeps most bond yields at record lows
By Frank Pingue
TORONTO, Dec 17 (Reuters) - Canada's dollar weakened against the U.S. dollar on Wednesday as lower prices for oil, a key Canadian export, knocked the currency off a five-week high reached overnight after the Federal Reserve cut U.S. rates to near zero.
Domestic bond prices were mostly higher, keeping most yields at record lows, after data showing Canadian wholesale trade had fallen by more than expected in October.
At 9:25 a.m. (1425 GMT), the Canadian unit was at C$1.2041 to the U.S. dollar, or 83.05 U.S. cents, down from C$1.2018 to the U.S. dollar, or 83.21 U.S. cents, at Tuesday's close.
During the overnight session the Canadian dollar rallied to C$1.1951 to the U.S. dollar, or 83.68 U.S. cents, as overseas investors unloaded the greenback after learning that the Fed lowered interest rates more aggressively than economists had expected on Tuesday.
But the momentum did not carry through into the early part of the North American session. That may mark the start of a typical slowdown in volumes with just under two holiday-shortened weeks of trading left in the year.
"The market just mentally checked out after the Fed yesterday," said Shaun Osborne, chief currency strategist at TD Securities. "It was the last kind of big event before the holidays and I think once that was out of the way we just haven't really seen a whole lot in terms of flows."
Weighing on the the Canadian dollar early on Wednesday was a drop in oil prices ahead of a meeting of the Organization of the Petroleum Exporting Countries, which is widely expected to agree to big cut in production.
The drag in oil prices, which remain above the four-year trough hit in early December, could be a sign that the OPEC cut has already been priced in the market.
The Canadian dollar's earlier surge had been attributed to a weaker U.S. dollar after the Fed set a target range for its federal funds of zero to 0.25 percent, down from its previous target of 1 percent. The Fed also said it would employ "all available tools" to dispel a year-long recession.
But more pockets of strength for the Canadian dollar, which remains on track to record its first back-to-back weeks of gains since Nov. 7, are expected in the near term.
"While the U.S. dollar has stabilized a little bit here I still think there are some very significant headwinds for the currency moving forward and it's just a question on when it starts to fall again," said Osborne.
BOND PRICES RISE
Canadian bond prices rallied on the long end of the curve and kept yields pinned at record lows after the latest domestic data added to a growing string of reports that support the idea of a weaker economy.
Also lending support to domestic bond prices was ongoing demand for higher-yield investments following the Fed cut.
The Canadian data showed the value of wholesale trade fell by 1.8 percent in October from September, which was far worse than the unchanged growth expected by the market.
The next key Canadian economic data is October retail sales figures on Thursday followed Friday's consumer prices report for November.
The two-year bond was down 2 Canadian cents at C$102.80 to yield 1.292 percent. The 10-year rallied 80 Canadian cents to C$111.50 to yield 2.852 percent.
The yield spread between the two-year and 10-year bond was at 176 basis points, up from 174 basis points at the previous close.
The 30-year bond jumped C$2.65 to C$126.15 to yield 3.535 percent. In the United States, the 30-year treasury yielded 2.587 percent.
(Editing by Frank McGurty)