CANADA FX DEBT-Canadian dollar posts biggest gain in May on hopes for US-Iran ceasefire deal

* Canadian dollar gains 0.4% against the greenback

* Rebounds from six-week low at 1.3869

* Current account deficit widens to C$7.18 billion

* Bond yields ease across the curve

By Fergal Smith

TORONTO, May 28 (Reuters) - The Canadian dollar rebounded from a six-week low against its U.S. counterpart on Thursday as the prospect of a deal to extend the ceasefire in the Middle East boosted risk appetite.

The loonie was trading 0.4% higher at 1.3780 per U.S. dollar, or 72.57 U.S. cents, putting it on track for its biggest advance since April 30. Earlier in the day the currency touched its weakest level since April 13 at 1.3869. The U.S. and Iran reached an agreement to extend their ceasefire pending the approval of President Donald Trump, after Iran had targeted a U.S. air base in Kuwait following U.S. strikes on what Washington called an Iranian drone operation.

"The market is believing once again that there's a deal," said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull. "It's risk-on everywhere - Canadian dollar included." Stocks on Wall Street rose and the U.S. dollar fell against a basket of major currencies. The price of U.S. West Texas Intermediate oil was trading 0.4% higher at $89.06 a barrel. Oil is one of Canada's major exports.

Domestic data showed that Canada's current account deficit widened to C$7.18 billion ($5.18 billion) in the first quarter from a downwardly revised C$1.00 billion deficit in the fourth quarter.

Economists expect first-quarter GDP data, due on Friday, to show the economy growing at an annualized rate of 1.5%.

U.S. and Mexican negotiators began formal talks to revamp the U.S.-Mexico-Canada Agreement, with Washington demanding stricter regional rules of origin. The U.S. and Mexico are excluding Canada from the current talks.

Canadian Prime Minister Mark Carney called for a "new partnership" with the U.S. to "help make America great again," in a speech delivered in New York.

Canadian bond yields moved lower across the curve. The 10-year was down 2.1 basis points at 3.444%, pulling back from an earlier nearly one-week high at 3.499%. (Reporting by Fergal Smith; Editing by Paul Simao)