* Canadian dollar weakens 0.5% against the greenback
* Touches its weakest since Oct. 6 at 1.3714
* Price of U.S. oil settles 1.9% higher
* Canadian bond yields rise across steeper curve
TORONTO, Oct 18 (Reuters) - The Canadian dollar weakened to a near two-week low against its U.S. counterpart on Wednesday as rising fears of wider instability in the Middle East bolstered demand for safe-haven currencies such as the greenback and the Swiss franc.
The loonie was trading 0.5% lower at 1.3705 per U.S. dollar, or 72.97 U.S. cents, after touching its weakest intraday level since Oct. 6 at 1.3714.
"Through the day we've seen a strong bid for haven assets," said Jay Zhao-Murray, a market analyst at Monex Canada Inc. "A lot of this is coming off of renewed market worries over the situation in the Middle East and that's simply dragged CAD down with it."
The U.S. dollar rallied against a basket of major currencies as investors watched the war between Hamas and Israel for signs of escalation and as the benchmark 10-year Treasury yield climbed to a 16-year high after a sharp rebound in U.S. homebuilding pointed to economic resiliency.
"In terms of CAD's performance on crosses, it hasn't been too bad. It's managed to avoid seeing some of the severe losses, say, in the Swedish krona or Norwegian krone," Zhao-Murray said.
Both the Swedish and Norwegian crowns fell by more than 1%.
The price of oil, one of Canada's major exports, settled 1.9% higher at $88.32 a barrel, supported by a bigger-than-expected U.S. storage draw and concerns about global supplies after Iran called for an oil embargo on Israel.
Canadian housing starts unexpectedly rose in September, climbing 8% compared with the previous month, data from the Canadian Mortgage and Housing Corporation showed.
Canadian government bond yields rose across a steeper curve, tracking moves in U.S. Treasuries. The 10-year was up 3.4 basis points at 4.108%, moving closer to a 16-year high it touched earlier this month at 4.292%. (Reporting by Fergal Smith; editing by Jonathan Oatis)
