(Adds dealer quotes and details throughout, updates prices) * Canadian dollar strengthens 0.5% against the greenback * Canada"s trade surplus narrows to C$778 million in July * Price of U.S. oil settles 2% higher * Canada"s 10-year yield eases 1.7 basis points to 1.164% By Fergal Smith TORONTO, Sept 2 (Reuters) - The Canadian dollar rose to its highest level in more than two weeks against its broadly weaker U.S. counterpart on Thursday as oil prices jumped and investors braced for a key U.S. jobs report. The loonie was trading 0.5% higher at 1.2554 to the greenback, or 79.66 U.S. cents, having touched its strongest level since Aug. 16 at 1.2547. "Oil is having a pretty strong performance," said Andrew Cherry, head of global markets at HSBC Bank Canada. "I wouldn"t be surprised too with (U.S.) payrolls tomorrow, that heading into a long weekend, that there is also a lot of position squaring going on." The price of oil , one of Canada"s major exports, settled 2% higher at $69.99 a barrel after U.S. crude inventories fell more than anticipated, while the U.S. dollar weakened against a basket of major currencies. Canadian financial markets are due to be closed on Monday for the Labour Day holiday. The U.S. jobs figures on Friday could offer clues on the timing of the Federal Reserve"s stimulus taper. The Bank of Canada, which is also buying bonds to support the economy, is due to make an interest rate decision next week. "I think given what we"ve seen this week with the Q2 numbers, the data for GDP, and the Delta (coronavirus) variant, I think it has taken any talk of (the BoC) accelerating tapering off the table," Cherry said. The BoC last cut bond purchases in July. Canada"s economy surprisingly contracted in the second quarter, missing forecasts for a 2.5% advance, data on Tuesday showed. On Thursday, data showed that Canada"s trade surplus narrowed to C$778 million in July from a revised C$2.6 billion in June. Canadian government bond yields eased across the curve, with the 10-year down 1.7 basis points at 1.164%. (Reporting by Fergal Smith; Editing by Jonathan Oatis and Peter Cooney) Our Standards: The Thomson Reuters Trust Principles.