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* C$ closes at 85.78 U.S. cents
* Rally follows upbeat domestic data
* Bond prices lower as equities climb
By Frank Pingue
TORONTO, May 6 (Reuters) - The Canadian dollar shot to its highest level in six months on Wednesday, tracking big gains on equity markets, a surge in oil prices and upbeat domestic data.
Late in the session, the currency touched C$1.1653 to the U.S. dollar, or 85.81 U.S. cents, which was its highest level since Nov. 6 and put it 12 percent above the four-year low it tumbled to in early March.
Also helping to stir appetite for risk among investors were reports that suggested some major U.S. banks won't have to raise capital under government stress tests.
"People are taking a look at the whole picture ... we are commodity based and the world is going to need commodities, and when things start to turn around on the economic front Canada is in a great position to do well," said John Curran, senior vice-president at CanadianForex, a commercial foreign exchange dealing firm.
"So it's all coming around and people are getting more confident as time goes on, and the more good news we see the more comfortable people are taking risk."
The currency closed at C$1.1658 to the U.S. dollar, or 85.78 U.S. cents, up from C$1.1761 to the U.S. dollar, or 85.03 U.S. cents, at Tuesday's close.
That left the currency well above its overnight low of C$1.1826 to the U.S. dollar, or 84.56 U.S. cents.
The Canadian dollar was given a boost early in the session when data showed the value of building permits in Canada rose by 23.5 percent in March from February, well above analyst expectations, after after five months of declines. [ID:nN06546133]
The currency received another boost shortly after when the Ivey Purchasing Managers Index rose in April, showing the domestic economy is improving, after declining in the previous month.
Also lending support was a meaty 2.7 percent gain by the Toronto Stock Exchange's main index and a rise in crude prices to a five-month high.
The next domestic data that will likely set the tone for the Canadian dollar is Friday's jobs data, which is expected to show the economy shed 50,000 jobs in April while unemployment rose to 8.3 percent, according to a Reuters survey.
BONDS PRICES LOWER
Canadian bond prices ended lower across the curve as the upbeat data from both sides of the border triggered a rally in riskier assets like stocks and curbed appetite for more secure assets like government debt.
Alongside the upbeat domestic data was a U.S. report that showed private employers cut fewer jobs than expected last month, which boosted hopes the U.S. economy there has come through the worst of the recession.
But the move in bond prices was held in check ahead of the release of Friday's Canadian and U.S. jobs data.
The benchmark two-year Canadian government bond ended down 2 Canadian cents at C$100.45 to yield 1.029 percent, while the 10-year bond dropped 15 Canadian cents to C$105.85 to yield 3.070 percent.
The 30-year bond slipped 80 Canadian cents to C$119.00 to yield 3.883 percent.
Canadian bonds were were relatively mixed compared to the performance of their U.S. counterparts. The 10-year bond yield was 8.6 basis points below the U.S. 10-year yield, compared with 11.7 basis points below on Tuesday.