By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday, extending its monthly decline, as souring investor sentiment offset domestic data supportive of further upsized interest rate hikes by the Bank of Canada.

The loonie traded 0.4% lower at 1.2850 to the greenback, or 77.82 U.S. cents, after giving back earlier gains. On Thursday, the currency touched its weakest intraday level in more than seven weeks at 1.2879.

"It is a typical risk-off move," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull. "More and more people are talking about 1.30 (as a target) now if risk sentiment deteriorates further."

For the month, the loonie weakened 2.7% as the war in Ukraine, COVID-19 lockdowns in China and the potential for aggressive interest rate hikes by the Federal Reserve spooked investors worried about the global economic outlook.

Wall Street fell on Friday as disappointing forecasts from some major technology companies and the biggest surge since 2005 in a key monthly inflation gauge added to investor worries.

The Canadian economy most likely grew by an annualized 5.6% in the first quarter, official data showed, well ahead of the Bank of Canada's recent projections, reinforcing the likelihood of another half-percentage-point interest rate hike on June 1 when the central bank is due to announce its next policy decision.

The central bank hiked by that increment earlier this month, marking its biggest single increase in 22 years.

The price of oil, one of Canada's major exports, settled 0.6% lower at $104.69 a barrel, while the safe-haven U.S. dollar pulled back from 20-year highs.

Canadian government bond yields were higher across the curve. The 10-year climbed 5.2 basis points to 2.839%, but held below the 11-year high notched last week at 2.944%.

(Reporting by Fergal Smith, Editing by Louise Heavens and Paul Simao)