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* C$ hits overnight high near 81.50 U.S. cents
* Currency rallies on renewed appetite for risk
* Bond prices mixed in holiday-shortened session (Adds details and comments)
By Frank Pingue
TORONTO, Feb 13 (Reuters) - The Canadian dollar rallied versus the U.S. greenback on Friday as investor appetite for risk returned on hopes for a U.S. government plan to subsidize mortgages, but moves were exaggerated by thin trade.
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 stock markets, but it eventually relinquished some of the gains as the rally did not carry into the North American session.
Global stocks were given a boost following news on Thursday that Washington was hammering out a plan to subsidize mortgage payments for some 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 9:45 a.m. (1445 GMT), the Canadian currency had eased back to C$1.2400, or 80.65 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 sent investors into perceived safe haven currencies such as 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.
Canadian bond prices were mixed across the curve and clinging to a tight range with the Canadian bond and U.S. Treasury markets both scheduled to have shortened sessions on Friday ahead of market holidays on Monday in both countries.
Prices on the short end of the curve were a touch lower, extending a late-session slide on Thursday on news that Washington was creating a plan to subsidize mortgage payments for financially stretched homeowners.
With no Canadian economic figures due until next week, the Canadian bond market was widely expected to take its cue from the bigger U.S. Treasury market, which was down across the curve.
"I don't expect a whole lot of fireworks, it's a pretty slow day today," said Eric Lascelles, chief economics and rates strategist at TD Securities.
"There's not a lot to go off so it's probably going to be a light one and we will have to reset ourselves for next week, when Canadian inflation comes out."
The Canadian economic data calendar will pick up next week with a slew of reports. The consumer price index data for January, to be released on Feb. 20, is likely to attract the most attention.
The interest-rate sensitive two-year bond was down 3 Canadian cents at C$102.79 to yield 1.164 percent, while the 10-year bond fell 3 Canadian cents to C$110.80 to yield 2.913 percent.
The 30-year bond was up 5 Canadian cents at C$123.75 to yield 3.647 percent. (Reporting by Frank Pingue and Ka Yan Ng; editing by Peter Galloway)