Canadian dollar rallies as vaccine hopes boost global stocks

* Canadian dollar gains 0.4% against the greenback

* Canadian manufacturing sales rise 10.7% in May

* Price of U.S. oil increases 1.6%

* Canada's 10-year rises 1.9 basis points to 0.555%

By Fergal Smith

TORONTO, July 15 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as investors grew more optimistic about a coronavirus vaccine and domestic data showed a rebound in factory sales, with the currency recovering from a two-week low the day before.

Canadian manufacturing sales increased 10.7% in May following a record 27.9% decline in April, Statistics Canada said, as many manufacturers resumed operations following COVID-19-related shutdowns.

World shares climbed towards a four-month high after U.S. researchers reported that Moderna Inc's experimental vaccine for COVID-19 showed it was safe in an ongoing early-stage study.

Canada runs a current account deficit and is a major exporter of commodities, including oil, so the loonie tends to be sensitive to the global flow of trade and capital.

U.S. crude prices were up 1.6% at $40.95 a barrel after a sharp drop in U.S. crude inventories.

The Canadian dollar was trading 0.4% higher at 1.3563 to the greenback, or 73.73 U.S. cents. The currency, which on Tuesday touched its weakest intraday level since June 30 at 1.3646, traded in a range of 1.3562 to 1.3617.

The Bank of Canada is due to make an interest rate announcement at 10 a.m. (1400 GMT). The central bank is expected to leave its benchmark interest rate on hold at 0.25%, with investors likely to focus on the bank's outlook for the economy and potential guidance on its bond-buying program.

"We'll be watching for any discussion of how the BoC might adjust its purchase program in reaction to last week's deficit and issuance explosion in the federal fiscal snapshot," Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets, said in a note.

Canada's budget deficit is forecast to hit C$343.2 billion in the current fiscal year.

Canada's 10-year was up 1.9 basis points on Wednesday at 0.555%. (Reporting by Fergal Smith Editing by Nick Zieminski) ((fergal.smith@thomsonreuters.com; +1 416 941 8113;)) Keywords: CANADA FOREX/

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