* C$ higher at 93.88 U.S. cents
* Recovers from six-week low hit overnight
* Briefly pared gains after ISM data boosted greenback
* Bonds hit by strong U.S. data, Canada outperforms
By Claire Sibonney
TORONTO, Feb 1 (Reuters) - The Canadian dollar gained strength on Monday, rising off a six-week low against the U.S. dollar in the overnight session, helped by a rise in risk appetite that boosted commodity and equity markets.
The Canadian dollar briefly pared gains after key data that showed the U.S. manufacturing sector continued to expand in January, but it quickly resumed its strengthening trend. [ID:nN01186177]
"Risk aversion levels are decreasing with the stock market rallying and so that has boosted commodities and we're seeing the U.S. dollar weaker across the board on the back of that," said George Davis, chief technical strategist at RBC Capital Markets.
"We did see a little bit of a shorter term recovery in the U.S. dollar after the release of that (manufacturing) number but I don't think it's been substantial or significant enough to really reverse the trends we have seen going into the beginning of today," added Davis.
At noon (1700 GMT), the Canadian dollar was at C$1.0652 to the U.S. dollar, or 93.88 U.S. cents, up from C$1.0693 to the U.S. dollar, or 93.52 U.S. cents, at Friday's close.
Overnight, the currency weakened to C$1.0722 to the U.S. dollar, or 93.27 U.S. cents, its weakest since Dec. 18. But it edged off that low as U.S. and Canadian stocks rose and the price of oil firmed, showing risk appetite is on the rise. [O/R]
Gold also extended gains towards $1,090 an ounce as the U.S. dollar declined further versus the euro after euro zone manufacturing data beat expectations, boosting interest in the metal as an alternative asset. [GOL/]
"Going forward it's going to depend on what equity markets do from here. If the rally continues to build I think we'll continue to see the Canadian dollar strengthen and vice versa," said Davis.
The data calendar for Canada is empty until Thursday when data for building permits for December and a gauge of purchasing activity for January are due. But the main focus will be on Friday when market players look for further evidence of an economic recovery in the Canadian and U.S. jobs data. ECONCA.
Canadian bonds were lower, sliding alongside their U.S. counterparts after the strong manufacturing data boosted riskier assets.
"They've generally been under some pressure," said Davis.
"We started to see some signs of faltering late last week in the rally and we've continued to see that fall through today on the back of the stronger ISM numbers."
The two-year bond CA2YT=RR edged 3 Canadians cents lower to C$100.31 to yield 1.35 percent, while the 10-year bond CA10YT=RR fell 26 Canadian cents to C$102.88 to yield 3.39 percent.
Canadian government bonds outperformed U.S. Treasuries across the curve, with the yield on the Canadian 10-year bond 27 basis points below its U.S. counterpart, compared with 24 basis points on Friday. (Reporting by Claire Sibonney; Editing by Jeffrey Hodgson)