* Canadian dollar strengthens 0.6% against the greenback * Touches its strongest level since July 6 at 1.2362 * Canadian factory sales rise 0.5% in August * Canadian bond yields ease across much of a flatter curve By Fergal Smith TORONTO, Oct 14 (Reuters) - The Canadian dollar on Thursday strengthened to its highest level in more than three months against its U.S. counterpart, as oil prices rose and domestic manufacturing data added to evidence that economic activity picked up in the third quarter. Canadian factory sales rose 0.5% in August from July, on higher sales of petroleum and coal, chemicals and primary metals, Statistics Canada said. "The broad-based increase in Canada"s manufacturing sales in August is welcome news," Omar Abdelrahman, an economist at TD Economics, said in a note. "Canada"s economy appears to be on track to record a solid rebound in the third quarter." Canada"s economy surprisingly shrank in the second quarter. But data last Friday showed that Canada has added back all the jobs it lost during the pandemic. The jobs data has bolstered expectations for the Bank of Canada to further cut its bond purchase program later this month. The central bank is due on Oct. 27 to make an interest rate announcement and update its economic forecasts. The price of oil, one of Canada"s major exports, rose after the International Energy Agency said that record natural gas prices would boost demand for oil and top oil producer Saudi Arabia dismissed calls for additional OPEC+ supply. U.S. crude prices increased 0.5% to $80.85 a barrel, while the Canadian dollar was trading 0.6% higher at 1.2362 to the greenback, or 80.89 U.S. cents, its strongest level since July 6. Gains for the loonie came as the U.S. dollar gave back some recent gains against a basket of major currencies. Canadian government bond yields were lower across much of a flatter curve. The 10-year dipped 2.2 basis points to 1.580%, after touching on Tuesday its highest since January 2020 at 1.683%. (Reporting by Fergal Smith; Editing by Kirsten Donovan) Our Standards: The Thomson Reuters Trust Principles.