* Canadian dollar at C$1.2502, or 79.99 U.S. cents * Loonie at strongest level since July 1, 2015 * Bond prices lower across the maturity curve By Fergal Smith TORONTO, April 29 (Reuters) - Canada's dollar strengthened against a broadly weaker U.S. currency on Friday as oil rose and Canadian data supported expectations of strong first-quarter economic growth. Canada's economy contracted 0.1 percent in February, as expected, after climbing 0.6 percent in January, data from Statistics Canada showed. It leaves the economy on track to grow 3 percent in the first quarter, according to Richard Gilhooly, the head of rates strategy at CIBC Capital Markets. Oil prices touched fresh highs for 2016 as a weak U.S. dollar and falling U.S. production tempered concerns about a lingering excess of physical oil. U.S. crude was up 1.43 percent at $46.69 a barrel. The U.S. dollar fell against a basket of major currencies on Thursday after the Bank of Japan's unexpected decision to withhold from further monetary policy easing rippled through markets and GDP data showed the U.S. economy virtually ground to a halt in the first quarter. At 9:41 a.m. EDT (1341 GMT), the Canadian dollar was trading at C$1.2502 to the greenback, or 79.99 U.S. cents, stronger than Thursday's close of C$1.2549, or 79.69 U.S. cents. The currency's weakest level of the session was C$1.2555 and its strongest was C$1.2500, a level not seen since July 1, 2015. A shift in expectations for the direction of Canadian interest rates has added to recent support for the loonie, as Canada's dollar is commonly known. Overnight index swaps (OIS) imply a modest chance of a rate hike this year, a swing from the more than 50 percent chance of a cut seen at the beginning of March. However, the Bank of Canada will not want to see additional Canadian dollar strength, Gilhooly said. "They want the export diversification, which they say will take up to three years, they want to see that continuing and this is not helping that process," he added. Canadian government bond prices were lower across the maturity curve, with the two-year price down 4.5 Canadian cents to yield 0.695 percent and the benchmark 10-year falling 37 Canadian cents to yield 1.516 percent. The Canada-U.S. 10-year spread was 1.8 basis points less negative at -34.4 basis points, its smallest gap since Jan. 20, 2015, as Canadian government bonds underperformed. (Reporting by Fergal Smith; Editing by Paul Simao)