* Canadian dollar at C$1.2881, or 77.63 U.S. cents
* Bond prices lower across steeper maturity curve
TORONTO, April 12 (Reuters) - The Canadian dollar
strengthened to an almost six-month high against its U.S.
counterpart on Tuesday as higher oil prices improved Canada's
economic outlook one day before the Bank of Canada's interest
rate announcement.
Oil rose above $43 a barrel to its highest level so far in
2016, supported by hopes that a meeting of oil producers will
agree steps to tackle a supply glut, a weak U.S. dollar and
further signs of strong demand in China.
U.S. crude prices were up 0.50 percent to $40.56 a
barrel, while Brent crude added 1.03 percent to $43.27.
The view that "China's economy is stabilizing" has helped
support dollar-bloc currencies such as the Canadian dollar,
according to a research note on Tuesday from Brown Brothers
Harriman.
At 9:22 a.m. EDT (1322 GMT), the Canadian dollar
was trading at C$1.2881 to the greenback, or 77.63 U.S. cents,
stronger than Monday's close of C$1.2899, or 77.53 U.S. cents.
The currency's weakest level of the session was C$1.2921,
while it touched its strongest since Oct. 15 last year at
C$1.2851.
The currency has rebounded 14 percent since hitting in
January a 12-year low at C$1.4689, supported by a partial
recovery in oil prices, the Canadian government's plan for
fiscal stimulus and sharply reduced expectations for Bank of
Canada rate cuts.
The implied probability of a Bank of Canada interest rate
cut this year has dropped to 10 percent from more than 50
percent at the start of March.
A run of better-than-expected economic data at the start of
the year has also been supportive of the loonie, including
employment data on Friday showing the creation of 40,600 jobs in
March.
However, Bank of Canada Governor Stephen Poloz is expected
to talk up economic risks and play down signs of stronger growth
when the central bank sets interest rates on Wednesday, anxious
to keep a recovering currency from choking off exports.
Canadian government bond prices were lower across the
maturity curve in sympathy with U.S. Treasuries.
The two-year price fell 3 Canadian cents to yield
0.572 percent and the benchmark 10-year was down 28
Canadian cents to yield 1.27 percent.
The curve steepened, as the spread between the 2-year and
10-year yields widened by 1.6 basis points to 69.8 basis points,
indicating underperformance for longer-dated maturities.
(Reporting by Fergal Smith; Editing by Meredith Mazzilli)