* Canadian dollar strengthens 0.2% against the greenback * Canadian new home prices rise 0.6% in June from May * Price of U.S. oil increases 1.7% * Canadian bond yields increase across a steeper curve TORONTO, July 21 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Wednesday, as investor sentiment globally showed signs of improving for a second day after deteriorating on worries that rising COVID-19 cases could impede economic recovery. Stock markets and the price of oil, one of Canada"s major exports, rose as investors bet an earlier flight to safety sparked by fears about the spread of the Delta coronavirus variant was overdone. U.S. crude futures rose 1.7% to $68.33 a barrel, while the Canadian dollar was trading 0.2% higher at 1.2658 to the greenback, or 79.00 U.S. cents. On Monday, the currency slumped to its weakest level in five months at 1.2807. Canadian new home prices rose 0.6% in June from May, the smallest increase in six months, data from Statistics Canada showed. The annual increase was 11.9%. The Canadian retail sales report for May is due on Friday, which could guide expectations for the Bank of Canada policy outlook. Last week, the central bank took a mostly optimistic stance on the country"s economy, saying the threat of the COVID-19 pandemic had largely passed, while warning inflation would remain hot in the near term. Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries. The 10-year was up 2.1 basis points at 1.200%, after touching on Monday its lowest intraday level in five months at 1.097%. (Reporting by Fergal Smith; Editing by Andrea Ricci) Our Standards: The Thomson Reuters Trust Principles.