* Closes at $0.9902 to the U.S. dollar, or $1.009
* U.S. crude oil futures drop
* Bond prices mixed in choppy trade (Updates to close, adds details, quotes)
By Claire Sibonney
TORONTO, Feb 7 (Reuters) - Canada's dollar retreated against the U.S. currency on Monday, reversing early gains as it tracked oil prices that dropped as Mideast oil supplies remained stable despite continued unrest in Egypt.
U.S. crude prices fell for a third straight session, hitting their lowest level in more than a week as investors weighed the lack of disruption in supplies from the Middle East against speculation that oil prices could spike if the Suez Canal were closed. [O/R]
"It really looks like this short-term volatility in the North American afternoon is pretty connected to (oil prices)," said Sacha Tihanyi, a currency strategist at Scotia Capital.
He said the move in the Canadian currency, which is linked tightly to the country's exports of oil and other commodities, was still fairly restrained, and noted there will be no major economic data in Canada until monthly trade figures are released on Friday.
The Canadian dollar CAD=D4 closed at C$0.9902 to the U.S. dollar, or $1.0099, down from Friday's North American close at C$0.9884 to the U.S. dollar, or $1.0117.
Early in the day, the currency advanced along with global stock markets and commodity prices. It benefited as well from second-tier Canadian data that showed building permits rebounded in December. [ID:nN07203696]
Adam Cole, global head of FX strategy at RBC Capital Markets in London, said the currency was supported by the risk-on tone in the markets, partly in a play on last week's North American employment figures.
Canada's economy created more than quadruple the 15,000 jobs in January that markets had expected. [ID:nN04174016]
Although the rise in January U.S. payrolls was much smaller than expected, traders concluded the figure was affected by severe snowstorms and instead focused on a sharp drop in the jobless rate.
"The market's reading of the U.S. employment data on Friday was, on balance, better-than-expected despite what the headline number showed," Cole said. "The market has gone with the view that the weather was a major factor."
Canadian government bond prices also turned choppy in afternoon trade, reversing some earlier losses.
The two-year bond CA2YT=RR was up 1 Canadian cent to yield 1.843 percent, while the 10-year bond CA10YT=RR rose 14 Canadian cents to yield 3.443 percent.
Sheldon Dong, fixed income analyst and TD Waterhouse Private Investment, said that market focus was on corporate bank debt, with prices rising after Canadian banks said they don't expect to have to redeem securities early to comply with new Basel III global bank regulations. [ID:nN07207105] (Reporting by Claire Sibonney; editing by Peter Galloway)