Canadian dollar reverses from two-week high on global growth worries

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday, pulling back from its highest level in more than two weeks as oil prices fell and investors worried about the impact on the global economy of a slowdown in China.

U.S. stocks tumbled as warnings from Caterpillar Inc and Nvidia Corp added to concerns about a slowing Chinese economy and tariffs taking a bite out of U.S. corporate profits.

Officials from China are due to visit Washington this week for the next round of trade negotiations with the United States. The trade dispute between the world's two largest economies could worsen the outlook for global growth.

Canada is running a current account deficit and exports many commodities, including oil, so its economy could be hurt by a slowdown in the global flow of trade or capital.

"I see no real argument on how we can buck the trend of a global economic slowdown and in many ways Canada may feel that slowdown harder and longer than most developed economies." said Michael White, a portfolio manager at Picton Mahoney Asset Management in Toronto.

U.S. crude oil futures settled 3.2 percent lower at $51.99 a barrel after an increase in U.S. crude drilling pointed to further supply growth. Still, oil has rebounded about 23 percent since hitting an 18-month low in December.

At 3:43 p.m. (2043 GMT), the Canadian dollar was trading 0.2 percent lower at 1.3252 to the greenback, or 75.46 U.S. cents, reducing some of Friday's sharp gains.

Earlier in the session, the currency touched its strongest since Jan. 11 at 1.3204.

The 17-day high for the loonie came despite weak domestic data last week that prompted some economists to project that Canada's economy contracted in November. November gross domestic product data is due on Thursday.

The Bank of Canada cut its near-term growth forecasts earlier this month as it left its benchmark interest rate on hold at 1.75 percent.

"Given our lag on the U.S. in interest rates we would suggest that the Canadian dollar is vulnerable down to 70 (U.S.) cents," White said.

The Federal Reserve's key overnight lending rate was raised in December to a range of 2.25 percent to 2.50 percent. The central bank is due to make an interest rate decision on Wednesday.

Canadian government bond prices were higher across a flatter yield curve, with 10-year rising 12 Canadian cents to yield 1.963 percent.

(Reporting by Fergal Smith; Editing by Frances Kerry and Sandra Maler)

By Fergal Smith