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* C$ closes down at C$0.9623 vs US$, or $1.0392
* Bond prices backtrack in bid for riskier assets (Updates to close, adds details, quotes)
By Claire Sibonney
TORONTO, May 12 (Reuters) - The Canadian dollar closed lower against the U.S. dollar on Thursday, but pared most of the session's losses as a rebound in oil and other commodities helped restore interest in the resource-based currency.
By the end of the day, U.S. crude oil futures were higher after volatile trading, rising on greenback weakness, which offset concerns about demand. Oil rebounded from a 5 percent plunge in the previous session. [O/R]
U.S. stocks also stabilized in positive territory. [.N]
"It's amazing, today has just been a gyration in crude, equities and the FX market, the market seems really uncertain," said Firas Askari, head of foreign exchange trading at BMO Capital Markets.
"You've had monstrous ranges here in the currencies but the volume hasn't been that heavy," he added, noting that traders were hard-pressed to come up with any concrete explanations for the dramatic moves, apart from position-squaring.
The Canadian dollar CAD=D4 ended the North American session at C$0.9623 to the U.S. dollar, or $1.0395, well off the day's lows, but still slightly down from Wednesday's close of C$0.9611 to the U.S. dollar, or $1.0405.
Analysts cited a combination of factors for the broad rebound in riskier assets, including a bounce in the euro and signals that the White House and congressional Republicans were moving closer to an agreement on raising the national debt ceiling.
Askari said that uncertainty over the Bank of Canada's next policy move is a factor weighing on the currency, as investors eagerly await crucial inflation numbers next week. ECONCA
The recent collapse in commodity prices has raised questions about how high the Bank of Canada, which targets inflation, is likely to raise interest rates over the rest of the year. BOCWATCH
Weaker commodity prices could undermine economic growth and take pressure off the Bank of Canada to tighten monetary policy.
"Again if we have a blowout (inflation) number next week, then you can see those expectations ramp up and the Canadian dollar will appreciate," said Askari, adding that is not what the central bank wants.
"The Bank of Canada does not want the Canadian dollar to appreciate in a rapid manner and everyone is very cognizant of that."
Finance Minister Jim Flaherty has also signaled that currency volatility is unwelcome, but he said this week that there are advantages to having a strong currency. [ID:nN10140882]
Boosting the currency in recent days has been talk of positive flows on the back of foreign acquisitions and buying by Asian central banks.
Askari cited a lot of interest from long-term asset managers to buy Canadian dollars between C$0.9675 and C$0.9725.
Jack Spitz, managing director of foreign exchange at National Bank Financial, said important Canadian dollar support lies around C$0.97-C$0.9720, followed by the 90-day moving average of C$0.9765 and a bigger trendline at C$0.9800.
"The market continues to be biased for an outperformance by the Canadian dollar against the U.S. dollar," he said, noting the Canadian currency will likely need to fall back through parity for the market to start thinking about reversing its net long positions.
Canadian bond prices retreated as they tracked their U.S. counterparts, which were hurt by the lackluster 30-year Treasury bond auction and renewed appetite for stocks and commodities after recent selloffs in riskier assets. [US/]
Canada's two-year bond CA2YT=RR was off 1 Canadian cent to yield 1.705 percent, while the 10-year bond CA10YT=RR fell 8 Canadian cents to yield 3.233 percent. (Additional reporting by Ka Yan Ng; editing by Peter Galloway)