* C$ stages brief rally back above 80 U.S. cents
* Late selloff in equities weighs on C$
* Bond prices end down as supply concerns resurface (Recasts with comments and closing numbers)
By Frank Pingue
TORONTO, Feb 19 (Reuters) - The Canadian dollar rallied as much as 0.9 percent versus the U.S. greenback on Thursday but ended a touch lower as North American equities eased from early levels as risk appetite diminished.
A good portion of the currency's early gains came ahead of the market open, when equity futures had pointed to a much stronger open than actually happened.
The gains were not sufficient to withstand a selloff late in the day as equities fell from early highs and dragged the Canadian currency along for the ride.
"As we went through the mid-morning we saw a reversal in fortune in equities ... and I think basically that has been the main factor that has been hanging over the Canadian dollar like a cloud," said George Davis, chief technical strategist at RBC Capital Markets.
"Once the equity rally sputtered out, I think people started to get concerned again about the limited ability of the market to rally, and that basically emphasizes the fact that we are still within a bearish environment."
The Canadian dollar closed at C$1.2593 to the U.S. dollar, or 79.41 U.S. cents, down from C$1.2581 to the U.S. dollar, or 79.48 U.S. cents, at Wednesday's close.
Earlier, the Canadian dollar rallied as high as C$1.2467 to the U.S. dollar, or 80.21 U.S. cents, which put it 0.9 percent above the previous session's close.
Toronto's key stock index was in negative territory late in the session but managed to close 0.11 percent higher, while the Dow Jones industrial average dropped 1 percent.
As has been the case in recent weeks, the Canadian dollar's performance was tied closely to moves in equities.
Canada has an export-oriented economy, so the nagging concerns about global growth that continue to rattle stocks have also taken a toll on the currency.
The Canadian dollar has been so influenced by equities recently that oil prices, a common driver of the commodity-linked currency, have played only a minor role.
Oil prices surged 14 percent on Thursday, a move that normally would have spurred a Canadian dollar rally.
Canadian bond prices finished lower across the curve for the second straight session as the lack of any key economic data to spark a move left them at the mercy of the bigger U.S. Treasury market, which fell on nagging concerns about oversupply.
Investors pushed aside data that showed Canada's composite leading indicator dropped more than expected. While normally a closely watched report, it did not have any noticeable impact on bond prices.
As well as worries over supply, the U.S. Treasury market was pulled lower by data that showed U.S. producer prices rose faster than expected in January. [ID:nN18449971]
The key Canadian consumer price index report for January will be released on Friday, and it is expected to show the inflation rate held steady in January at 1.2 percent year-on-year, while consumer prices fell 0.2 percent on the month.
"It will be watched closely, but right now inflation isn't the big worry, so unless it's a big surprise I don't anticipate big moves (in bond prices)," said Benjamin Reitzes, economist at BMO Capital Markets.
The interest-rate sensitive two-year bond fell 3 Canadian cents to C$102.60 to yield 1.260 percent, while the 10-year bond dropped 46 Canadian cents to C$110.82 to yield 2.909 percent.
The 30-year slipped C$1.15 to C$123.95 to yield 3.637 percent.
Canadian bonds outperformed U.S. Treasuries across the curve, with the Canadian 30-year yield falling below its U.S. counterpart.
The Canadian 30-year bond yield was about 3 basis points below its U.S. equivalent, compared with the previous session when it ended 2.60 basis points above. (Editing by Peter Galloway)