* C$ gains on higher oil, greenback weakness
* Government bonds lower as TSX closes up 3 pct
By Jennifer Kwan
TORONTO, Jan 21 (Reuters) - The Canadian dollar rallied off a six-week low against the U.S. currency on Tuesday, boosted by a rise in the price of oil and as investors returned to riskier assets.
Canadian government bond prices followed the U.S. Treasury market lower as North American stock markets rallied, reversing steep losses in the previous session.
The currency finished at C$1.2558 to the U.S. dollar, or 79.63 U.S. cents, up from C$1.2676 to the U.S. dollar, or 78.89 U.S. cents, on Tuesday.
Earlier, the currency touched a low of C$1.2765 to the U.S. dollar, or 78.34 U.S. cents, its lowest level since Dec. 5.
The rise in the Canadian unit comes as the currency has recently been pressured by firmness in the U.S. dollar, said Sal Guatieri, senior economist at BMO Capital Markets.
"It's essentially a reversal of risk-aversion trades," said Guatieri.
"We're seeing money getting pulled out of safe harbors like the U.S. Treasury market, which has weakened off quite a bit today, and by nature out of the U.S. dollar and into other currencies, including our own."
The price of oil CLc1 also helped to support the currency, given Canada's position as a major energy producer. March crude rose 6.6 percent to settle at $43.55 a barrel on Wednesday as OPEC supply cuts overcame additional evidence that a deepening global slowdown was hitting demand. [ID:nSP402296]
On the economic front, Statistics Canada said on Wednesday that wholesale trade declined by 1.6 percent in November from October on lower demand for exports and weaker domestic sales. But economists said the data did not have a notable impact on currency or bond markets.
Canadian bond prices tracked the U.S. market lower, while money flowed into equities with Toronto's main stock index .GSPTSE finishing up nearly 3 percent.
As well, the U.S. market was largely lower on worries about upcoming supply as the new administration of President Barack Obama prepares to launch an economic recovery plan. [ID:nN21285716]
"The concern there is that the U.S. will have to issue a lot more debt and that's putting pressure on the treasury market. The Canadian market is trading off that sentiment as well," said Charmaine Buskas, senior economics strategist at TD Securities.
The two-year bond fell 8 Canadian cents to C$103.06 to yield 1.079 percent, while the 10-year bond fell 40 Canadian cents to C$112.48 to yield 2.728 percent.
The 30-year bond retreated C$1.00 to yield 3.612 percent. In the United States, the 30-year treasury yielded 3.1636 percent.
Editing by Rob Wilson