(Adds strategist quote and details on activity; updates prices) * Canadian dollar falls 0.1% against the greenback * Loonie touches its weakest since April 26 at 1.3494 * Price of U.S. oil increases 0.5% * Canadian bond prices rise across a flatter yield curve By Fergal Smith TORONTO, May 6 (Reuters) - The Canadian dollar weakened to a 10-day low against its U.S. counterpart on Monday before paring its losses, as investors worried about a potential escalation of the trade dispute between the United States and China. Global stocks fell after U.S. President Donald Trump, in a surprising move, threatened to hike tariffs on Chinese goods this week. Canada runs a current account deficit and exports many commodities, including oil, so its economy could suffer if the global flow of capital or trade slows. "If a trade war breaks out, then definitely demand for energy will be lower, so that also effects the loonie," said Alfonso Esparza, a senior currency analyst at OANDA. The price of oil turned higher in volatile trade as rising tensions between the United States and Iran buoyed prices after they touched a one-month low following Trump's tariff threat. U.S. crude oil futures settled 0.5% higher at $62.25 a barrel. Bank of Canada Governor Stephen Poloz said it was impossible to predict the consequences of an escalation in the U.S.-China trade dispute. He also said the housing sector was solid despite a series of challenges and called for a more flexible mortgage market to help make the country's financial system safer. At 3:43 p.m. (1943 GMT), the Canadian dollar was trading 0.1% lower at 1.3437 to the greenback, or 74.42 U.S. cents. The currency, which gained 0.3% last week as U.S. data showed muted wage inflation, touched its weakest intraday level since April 26 at 1.3494. On Friday, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed that speculators had cut their bearish bets on the Canadian dollar for the second straight week. As of April 30, net short positions had fallen to 46,745 contracts from 47,493 in the prior week. Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year rose 3.5 Canadian cents to yield 1.624% and the 10-year gained 26 Canadian cents to yield 1.737%. The 10-year yield touched on Friday its highest intraday since April 23 at 1.790%. (Reporting by Fergal Smith; Editing by Peter Cooney)
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