* Canadian dollar gains 0.6% against the U.S. dollar
* Touches its strongest since Feb. 27 at 1.3511
* BoC holds its benchmark rate at 5%
* Price of U.S. oil climbs 3.1%
TORONTO, March 6 (Reuters) - The Canadian dollar strengthened to an eight-day high against its U.S. counterpart on Wednesday, as investors reduced bets on a Bank of Canada interest rate cut over the coming months after the central bank said it was too early to begin easing.
The loonie was trading 0.6% higher at 1.3511 to the U.S. dollar, or 74.01 U.S. cents, its strongest level since Feb. 27.
The BoC kept its benchmark interest rate steady at 5% as expected and Governor Tiff Macklem said more time was needed to ensure inflation fell towards the central bank's 2% target.
"They are in no rush to do anything," said Derek Holt, vice president of capital markets economics at Scotiabank. "I think they need to get beyond the spring housing market ... see whether or not the January softness in core inflation was transitory or not."
Money markets see a roughly 20% chance of a rate cut at the next policy decision on April 10, down from 43% before the policy decision.
The gain for the loonie came as Federal Reserve Chair Jerome Powell told lawmakers that the Fed still expects to reduce interest rates later this year, pressuring the U.S. dollar against a basket of major currencies and helping to lift the price of oil, one of Canada's major exports. U.S. crude oil futures were up 3.1% at $80.57 a barrel.
The loonie is set to strengthen over the coming year if the Federal Reserve shifts to cutting interest rates as expected and the U.S. economy slows without slipping into recession, a Reuters poll found.
Canadian bond yields were mixed across a flatter curve. The 2-year rose 1.7 basis points to 4.063%, while the 10-year was down 1.1 basis points to 3.353%. (Reporting by Fergal Smith; editing by Barbara Lewis)
