(Adds strategist quotes and details throughout; updates prices) * Canadian dollar weakens 0.9% against the greenback * Loonie touches its weakest since Aug. 31 at 1.2652 * Price of U.S. oil settles 1.4% lower * Canadian 10-year yield rises 4.4 basis points to 1.232% By Fergal Smith TORONTO, Sept 7 (Reuters) - The Canadian dollar on Tuesday weakened against its U.S. counterpart and all the other G10 currencies, as oil prices fell and investors weighed prospects of the Bank of Canada turning more dovish at an interest rate decision this week. The loonie was trading 0.9% lower at 1.2647 to the greenback, or 79.07 U.S. cents, the biggest decline among G10 currencies. The loonie touched its weakest intraday level since Aug. 31 at 1.2652. "The market is having doubts about the strength of the (Canadian) economy and whether the Bank of Canada will continue to taper," said Adam Button, chief currency analyst at ForexLive. The Bank of Canada is expected to keep interest rates on hold at a record low of 0.25% on Wednesday and to wait until October before cutting its bond purchases further, a Reuters poll of economists showed. Canada"s economy unexpectedly shrank in the second quarter as shortages of microchips and other inputs curtailed trade in motor vehicles and domestic consumption. "There"s a growing fear that supply chain bottle necks could dramatically dampen growth for many months to come," Button said. The price of oil, one of Canada"s major exports, was pressured by concerns about weak demand in the United States and Asia as well as a strong U.S. dollar. U.S. crude oil futures settled 1.4% lower at $68.35 a barrel, while the greenback rallied against a basket of major currencies, bolstered by rising U.S. Treasury yields. Canadian government bond yields also moved higher as the Canadian market reopened following Monday"s Labour Day holiday. The 10-year was up 4.4 basis points at 1.232%. (Reporting by Fergal Smith; Editing by Emelia Sithole-Matarise and Sandra Maler) Our Standards: The Thomson Reuters Trust Principles.