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Canadian dollar strengthens 0.2% against the greenback

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Posts a weekly decline of 0.4%

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Manufacturing PMI rises to 10-month high

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10-year yield hits a three-week low

By Fergal Smith

TORONTO, March 1 (Reuters) - The Canadian dollar edgedhigher against its U.S. counterpart on Friday, clawing back someof its weekly decline, as domestic data showed manufacturingactivity moving closer to stabilizing and ahead of a Bank ofCanada interest rate decision next week.

The loonie was trading 0.2% higher at 1.3554 to theU.S. dollar, or 73.78 U.S. cents, after trading in a range of1.3546 to 1.3601. For the week, it was down 0.4% after touchingon Wednesday a 2-1/2-month low at 1.3605.

"A big challenge for the CAD's performance is the lack ofany compelling domestic narrative to either escape the pull ofthe USD's broader trend or the influence of risk appetite,"Shaun Osborne, chief currency strategist at Scotiabank, said ina note.

"We do expect some improvement in growth trends in thecoming year and we do also look for some narrowing in yieldspreads once the Bank of Canada and the Fed (Federal Reserve)start their respective easing cycles."

The Canadian central bank is expected to leave its benchmarkinterest rate on hold at a 22-year high of 5% on Wednesday butthen move to cutting in June, according to a Reuters poll.

The S&P Global Canada Manufacturing Purchasing Managers'Index rose to a seasonally adjusted 49.7 in February from 48.3in January, posting its highest level since April.

The gain for the loonie on Friday came as Wall Streetrallied and the price of oil, one of Canada's major exports,extended its recent gains. U.S. crude futures were up2.2% at $79.95 a barrel as markets awaited an OPEC+ decision onsupply agreements.

Canadian government bond yields eased across the curve,tracking moves in U.S. Treasuries. The 10-year wasdown 6.2 basis points at 3.430%, trading at its lowest levelsince Feb. 7.