TORONTO, Feb 13 (Reuters) - The Canadian dollar rallied versus the U.S. greenback on Friday as investor appetite for risk returned as hopes for a U.S. government plan to subsidize mortgages lifted stocks.
The Canadian currency rallied overnight to C$1.2281 to the U.S. dollar, or 81.43 U.S. cents, along with a surge in global stocks markets, but eventually relinquished some of the gains.
Global stocks were given a boost following news on Thursday that Washington was hammering out a plan to subsidize mortgage payments for troubled U.S. homeowners. [ID:nN12472591]
"It's basically the same relationship as before that has been driving the price action -- i.e., the price movement in equities," said George Davis, chief technical strategist at RBC Capital Markets.
"The risk is still that we'll see downside in equities, that in turn is going to push risk aversion back up, which will feed through negatively to the Canadian dollar."
By 8:40 a.m. (1340 GMT), the Canadian unit had eased back to C$1.2339, or 81.04 U.S. cents, which was still comfortably up from C$1.2448 to the U.S. dollar, or 80.33 U.S. cents, at Thursday's close.
In Thursday's session, Canada's currency briefly touched a three-week low as concerns about the global economy curbed risk appetite and sent investors into perceived safe haven currencies like the greenback.
The low-yielding U.S. dollar is typically considered a safe-haven currency, so when stocks drop and the risk barometer climbs, investors often repatriate funds and close out risky trades funded by U.S. dollars. (Reporting by Frank Pingue and Ka Yan Ng; Editing by Jeffrey Hodgson)