* Gustav nears oil installations in the U.S. Gulf
* Bond prices mostly lower on firm U.S. GDP data
By John McCrank
TORONTO, Aug 28 (Reuters) - The Canadian dollar was slightly higher against the U.S. dollar on Thursday, as the price of oil briefly rose above $120 a barrel and remained well bid on fears that Tropical Storm Gustav would damage oil and gas platforms in the U.S. Gulf.
Domestic bond prices fell along with the larger U.S. market after data was released showing U.S. economic growth for the second quarter was revised sharply higher.
At 10:00 a.m. (1400 GMT), the Canadian dollar was at C$1.0464 to the U.S. dollar, or 95.57 U.S. cents, up from C$1.0468, or 95.53 U.S. cents, at Wednesday's close.
The currency had risen to C$1.0432 to the greenback, or 95.86 U.S. cents earlier in the session.
The Canadian dollar has been linked increasingly to oil prices as the country's prominence as an energy producer has grown. Canada's oil sands contain the biggest deposit of crude outside the Middle East.
The price of U.S. crude oil CLc1 rose on forecasts that Tropical Storm Gustav would regain hurricane status as it approaches the U.S. Gulf, home to a quarter of U.S. oil production. See [ID:nSP204802]
The storm is expected to hit the U.S. Gulf around Monday, and would be the first major hurricane to threaten U.S. energy installations since Hurricanes Katrina and Rita in 2005.
Data on Thursday showed that high prices for energy exports boosted Canada's current account surplus in the second quarter to C$6.76 billion ($6.44 billion) from C$4.46 billion in the first quarter. See [ID;nN28257696]
The increase fell short of market expectations of a surplus of C$8.0 billion, held back by growing deficits in services and investment income.
Canada's main economic report for the week comes Friday with the gross domestic product for the second quarter.
"Our sense is if the figure surprises, it may be on the down-side," said Sal Guatieri, senior economist at BMO Capital Markets.
"If that's the case, the Canadian dollar would weaken because speculation of a Bank of Canada rate cut would build," he said.
Analysts, on average, expect second-quarter GDP to come in at 0.7 percent, according to a Reuters poll.
In the first quarter, the economy shrank by an annualized 0.3 percent. The technical definition of a recession is two back-to-back negative quarters.
The GDP figure is the last major piece of data before the Bank of Canada announces its interest rate decision Sept. 3.
BOND PRICES MOSTLY LOWER
Canadian bond prices were mostly weaker, along with the larger U.S. market, on a sharp upward revision to U.S. GDP for the second quarter, said Guatieri.
U.S GDP was revised to a 3.3 annual rate for the quarter, up from 1.9 percent in the initial estimate a month ago.
The two-year bond added 1 Canadian cent to C$100.00 to yield 2.750 percent. The 10-year dropped 22 Canadian cents to C$105.70 to yield 3.552 percent.
The yield spread between the two-year and 10-year bond was 79.5 basis points, down from 80.4 at the previous close.
The 30-year bond fell 43 Canadian cents to C$116.37 for a yield of 4.032 percent. In the United States, the 30-year treasury yielded 4.406 percent.
The three-month when-issued T-bill yielded 2.45 percent unchanged from the previous close. (Editing by Scott Anderson)