Canadian dollar strengthens to 5-month high as oil rallies

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Canadian dollar gains 0.3% against the greenback

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Touches its strongest level since March 21 at 1.3464

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Price of U.S. oil increases 3.2%

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Bond yields rise across the curve

By Fergal Smith

TORONTO, Aug 26 (Reuters) - The Canadian dollar strengthened to a five-month high against its U.S. counterpart on Monday as oil prices rose and major railroad operators focused on restoring service, after a work stoppage that threatened to disrupt the economy ended.

The loonie was trading 0.3% higher at 1.3470 to the U.S. dollar, or 74.24 U.S. cents, after touching its strongest intraday level since March 21 at 1.3464.

"The Canadian dollar continues to perform well in the aftermath of USD-CAD breaking and closing below strong support at 1.3590 on Friday," said George Davis, chief technical strategist at RBC Capital Markets.

The currency was up 0.8% on Friday, its biggest advance this year, as Federal Reserve Chair Jerome Powell signaled the start of interest rate cuts in the U.S.

The oil rally has added to support for the currency, Davis said.

U.S. crude oil futures were up 3.2% at $77.25 a barrel as supply concerns sharpened on reports of escalating conflict in the Middle East as well as production cuts in Libya. Oil is one of Canada's major exports.

The Canada Industrial Relations Board ordered on Saturday a halt to work stoppages at the country's two largest railways, signaling an end to an unprecedented service disruption.

Speculators have cut their bearish bets on the Canadian dollar for a third straight week, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of Aug. 20, net short positions had decreased to 164,410 contracts from 179,611 in the prior week.

Canadian government bond yields moved higher across the curve. The 10-year was up 2.1 basis points at 3.054% but staying within its recent range. (Reporting by Fergal Smith; Editing by Paul Simao)