* Rises in equities and oil prices help fuel C$ gain
* C$ hits seven-week high versus Japanese yen
* Bond prices fall in shadow of rising stock markets (Recasts with comments and closing numbers)
By Frank Pingue
TORONTO, Feb 24 (Reuters) - Canada's dollar bounced off an early low to close higher versus the greenback on Tuesday, helped by a rebound in North American equity markets and higher prices for oil, a key Canadian export.
The Canadian currency also shot to a seven-week high versus the Japanese currency as the yen's safe-haven bid was undermined by Japan's sharp economic downturn.
"Pretty much for the past year the Canadian dollar has been closely tied to the fortunes of global equity markets and we had a little bit of an example of that again today," said Doug Porter, deputy chief economist at BMO Capital Markets. "And it certainly didn't hurt that oil had a nice bounce today."
The Canadian dollar closed at C$1.2433 to the U.S. dollar, or 80.43 U.S. cents, up from C$1.2513 to the U.S. dollar, or 79.92 U.S. cents, at Monday's close.
The currency shot as high as C$1.2396 to the U.S. dollar, or 80.67 U.S. cents, during the session, which put it 1.2 percent above its session low, early in the day, of C$1.2540 to the U.S. dollar, or 79.74 U.S. cents.
The currency's early weakness extended losses from Monday's session when soft December retail figures offered more evidence of a deepening recession in Canada. The data is expected to pressure the Bank of Canada to cut its key interest rate by a half point on March 3 to 0.50 percent.
But equity markets rallied after getting beaten down to multi-year lows Monday and the sudden desire for more risky assets helped to lift the Canadian currency.
A 4 percent jump in oil prices on Tuesday, helped by figures that showed higher than expected compliance by Organization of Petroleum Exporting countries with agreed production cuts, also played a role in lifting the commodity-linked Canadian dollar.
Canada's sound banking system was also pegged as a reason for the Canadian dollar's surge versus the yen given the swath of banking-related concerns in the United States and elsewhere.
"People are looking around for what is safe nowadays," said David Watt, senior currency strategist at RBC Capital Markets.
"If you are worried about the financial sector then you want to be exposed to a place which has got a relatively sound and stable financial sector and that does fit Canada to an extent."
Canadian bond prices finished lower across the curve as investors dumped the more secure government debt and raced back into equities as prices looked more attractive after getting beaten down at the start of the week.
Toronto's key stock index finished 2.77 percent higher after falling nearly 4 percent in the previous session, while the Dow Jones industrial average rallied 3.32 percent.
"In the last week or so we have seen bonds fall back to that old correlation with equities, which hadn't been the case during the first month of the year," Porter said.
The next data due out in Canada will be Friday's current account balance for the fourth quarter. The data is expected to show Canada had a current account deficit of C$4.85 billion.
That will be followed by gross domestic product figures on Monday that are expected to show the Canadian economy shrank during the fourth quarter of 2008.
The interest-rate sensitive two-year bond fell 6 Canadian cents to C$102.70 to yield 1.196 percent, while the 10-year bond dropped 25 Canadian cents to C$111.20 to yield 2.864 percent.
The 30-year bond shed 68 Canadian cents to C$124.60 to yield 3.605 percent.
Canadian bonds outperformed U.S. Treasuries across most of the curve. The Canadian 30-year bond yield was 11.3 basis points above its U.S. counterpart, compared with 5.90 basis points on Monday. (Editing by Peter Galloway)