• Loonie weakens 0.6% against the U.S. dollar
  • Touches its weakest since May 4
  • Australian and New Zealand dollars also fall
  • 10-year yield touches its highest since March 9

TORONTO, May 24 (Reuters) - The Canadian dollar weakened to a near three-week low against U.S. counterpart on Wednesday, tracking declines for other risk-sensitive currencies, as investors worried that U.S. debt ceiling talks are not making sufficient progress.

The loonie was trading 0.6% lower at C$1.3590 to the greenback, or 73.58 U.S. cents, after touching its weakest intraday level since May 4 at 1.3605.

"I think it's a concern that there is no obvious sign at this point of getting a (debt ceiling) deal put together quickly," said Shaun Osborne, chief currency strategist at Scotiabank. "It's going to be probably a bumpy ride for currencies into next week or so."

The safe-haven U.S. dollar and avoid default.

Declines for the other dollar bloc currencies, the Australian dollar and the New Zealand dollar , were even steeper than for the loonie as the Reserve Bank of New Zealand signaled an end to interest rate hikes.

"The CAD is quite likely seeing a bit of spillover from quite an aggressive selloff for both the Aussie and Kiwi today," Osborne said.

Meanwhile, the price of oil settled nearly 2% higher at $74.34 a barrel after a large unexpected drawdown in U.S. crude inventories and a warning from the Saudi energy minister that raised the prospect of further OPEC+ production cuts. Oil is one of Canada's major exports.

Canadian government bond yields rose across the curve, tracking moves in U.S. Treasuries. The 10-year touched its highest level since March 9 at 3.283% before dipping to 3.266%, up 5.4 basis points on the day.

Reporting by Fergal Smith, Editing by Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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