* Turnaround in oil prices blamed for currency's slide
* Canadian dollar could still register gain for week
* Bond prices drop as investors move into stocks
By John McCrank
TORONTO, Aug 22 (Reuters) - The Canadian dollar fell versus the U.S. dollar on Friday as commodity prices weakened and took a bite out of the gains made by the currency earlier in the week.
Canadian bond prices, with no economic data to trigger a move, were lower alongside the bigger U.S. Treasury market as U.S. stocks rose sharply.
At 10:15 a.m. (1415 GMT), the Canadian currency was at C$1.0456 to the U.S. dollar, or 95.64 U.S. cents, down from C$1.0440 to the U.S. dollar, or 95.79 U.S. cents, at Thursday's close.
The currency spent the overnight session in a relatively tight range of C$1.0421 to C$1.0490, after rising 1.7 percent in the previous session when oil prices surged.
Investors jumped back into the U.S. dollar overnight, in part on news that there is a potential buyer for troubled U.S. investment bank Lehman Brothers LEH.N, said Steve Butler, director of foreign exchange trading at Scotia Capital.
State-run Korea Development Bank [KDB.UL] said Lehman was one of its options for acquisitions. See [ID:nSEO332057]
Lehman, the fourth-largest U.S. investment bank, has taken a $7-billion hit from credit-related writedowns and losses since the start of the global crisis, and its shares are down more than 80 percent since early 2007.
"Somebody is willing to take a big risk on a big U.S. investment house and that shows some a little bit of confidence in the U.S. and that perhaps things are nearing the bottom," Butler said.
The stronger U.S. dollar took some of the steam out of commodity prices, with U.S. crude oil CLc1 down more than $2 at around $119 a barrel and gold prices down more than $10 an ounce at around 826 an ounce.
Canada is a major exporter of many key commodities and is the largest supplier of oil to the United States.
Butler said if the U.S. dollar hangs on to its bid tone and commodities continue to sell off, the Canadian dollar could drift a bit lower in the session. He said he expects the currency to trade in a range of around C$1.0440 to C$1.0520 during the session.
Canadian bond prices were all down as dealers rushed into U.S. stocks and dumped bonds as soothing words from investor Warren Buffett lessened the demand for secure government debt.
Buffet, head of Berkshire Hathaway, told CNBC television that he has no bets against the U.S. dollar and that stocks are more attractive now than a year ago.
U.S. stocks opened more than 1 percent higher and left North American bond prices all lower.
With limited economic data out this session, financial markets were awaiting comments from U.S. Federal Reserve Chairman Bernanke on financial markets, according to Paul Ferley, assistant chief economist at Royal Bank of Canada.
The overnight Canadian Libor rate LIBOR01 was 2.9817 percent, down from 2.9500 percent on Thursday.
The two-year bond was down 9 Canadian cents to C$99.67 to yield 2.901 percent. The 10-year bond fell 10 Canadian cents to C$105.25 to yield 3.606 percent.
The yield spread between the two-year and 10-year bond was 66.6 basis points, down from 71.2 at the previous close.
The 30-year bond was down 8 Canadian cents at C$116.02 for a yield of 4.051 percent. In the United States, the 30-year treasury yielded 4.471 percent.
The three-month when-issued T-bill yielded 2.52 percent, up from 2.49 percent at the previous close. (Editing by Peter Galloway)