* Canadian dollar strengthens 0.2% against the greenback
* Posts a weekly decline of 0.4%
* Manufacturing PMI rises to 10-month high
* 10-year yield hits a three-week low
TORONTO, March 1 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Friday, clawing back some of its weekly decline, as domestic data showed manufacturing activity moving closer to stabilizing and ahead of a Bank of Canada interest rate decision next week.
The loonie was trading 0.2% higher at 1.3554 to the U.S. dollar, or 73.78 U.S. cents, after trading in a range of 1.3546 to 1.3601. For the week, it was down 0.4% after touching on Wednesday a 2-1/2-month low at 1.3605.
"A big challenge for the CAD's performance is the lack of any compelling domestic narrative to either escape the pull of the USD's broader trend or the influence of risk appetite," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.
"We do expect some improvement in growth trends in the coming year and we do also look for some narrowing in yield spreads once the Bank of Canada and the Fed (Federal Reserve) start their respective easing cycles."
The Canadian central bank is expected to leave its benchmark interest rate on hold at a 22-year high of 5% on Wednesday but then move to cutting in June, according to a Reuters poll.
The S&P Global Canada Manufacturing Purchasing Managers' Index rose to a seasonally adjusted 49.7 in February from 48.3 in January, posting its highest level since April.
The gain for the loonie on Friday came as Wall Street rallied and the price of oil, one of Canada's major exports, extended its recent gains. U.S. crude futures were up 2.2% at $79.95 a barrel as markets awaited an OPEC+ decision on supply agreements.
Canadian government bond yields eased across the curve, tracking moves in U.S. Treasuries. The 10-year was down 6.2 basis points at 3.430%, trading at its lowest level since Feb. 7. (Reporting by Fergal Smith; Editing by Alex Richardson)
