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(Repeats to fix verb tense in first paragraph)
* C$ eases to C$0.9779 to the U.S. dollar, or $1.0226
* Bond prices rise on euro-zone concerns
* Canada three-year bond auction receives strong demand
By John McCrank
TORONTO, May 25 (Reuters) - Canada's dollar weakened slightly on Wednesday, though rallying commodity prices helped the currency rebound from early-session lows triggered by Europe's sovereign debt problems.
The currency hit its weakest level against the greenback since March 28 -- C$0.9816 to the U.S. dollar, or $1.0186 -- early in the day as investors fretted over Greece's ability to impose tough austerity measures and the possibility that it may have to restructure its debt. [ID:nLDE74O0PW]
The concerns initially gave a bid to the safe-haven U.S. dollar and weighed on commodity-linked currencies, like the Canadian dollar. The euro slumped to a record low against the Swiss franc. [ID:nN25168177]
The Canadian dollar CAD=D4 ended the North American session at C$0.9779 to the U.S. dollar, or $1.0226, down from C$0.9761 to the U.S. dollar, or $1.0245, at Tuesday's close.
"The fact that we're closing around where we closed yesterday hides some of the movement that we saw today and certainly hides what's happened in other markets," said Camilla Sutton, chief currency strategist at Scotia Capital.
Commodity markets gained steam during the session. That boosted resource stocks, which helped Wall Street end a three-day slump and the Toronto Stock Exchange rise more than 1 percent. [ID:nN25169951] [ID:nTZOPGE72G]
Canada is a major exporter of commodities and moves in their prices often influence the country's currency.
Gold prices XAU= surged to a three-week high above $1,532 per troy ounce. [GOL/]
U.S. oil prices also rose, hitting a two-week high above $101 a barrel after U.S. data showed an unexpected drop in inventories of distillates. [O/R]
The Reuters-Jefferies CRB index .CBR, a global benchmark made up of a basket of 19 commodities, rose 1.53 percent, with copper [MET/L] up nearly 3 percent and wheat [GRA/] up over 2 percent. [ID:nLDE74O0GQ]
The Canadian dollar has been on a downward trend versus the greenback in recent weeks, and the late session rally was not enough to reverse that trend.
"For the past week we have sort of chipped away at rate expectations in Canada, and so that's had some impact in Canada as far as undermining the Canadian dollar," said Mark Chandler head of Canadian fixed income and currency strategy at RBC Capital Markets.
Rate hike expectations have been diminished by disappointing economic data and dovish comments from Bank of Canada Governor Mark Carney. [ID:nN20206551]
The central bank's next policy setting meeting is May 31. Swaps markets show that over the past week traders have cut their bets on rate hikes at every Bank of Canada announcement date from July to December. BOCWATCH
The Bank of Canada's key policy rate has remained at 1 percent since September.
Canadian bond prices rose on safe haven buying, and were given an additional boost by strong results of government debt auctions in both Canada and the United States.
"We had a very strong three-year auction in Canada and a very strong five year auction in the U.S. and so both of those helped influence that market in particular," Chandler said.
A C$3 billion auction of three-year Canadian government bonds produced an average yield of 2.037 percent, down from 2.251 percent at the last three-year bond auction in April. [ID:nN25144456]
There was just under C$8.3 billion in bids from primary dealers, resulting in a bid-to-cover ratio of 2.766, higher than the 2.5 average of the past five auctions, and the highest for a three-year auction since August 2010.
The three-year bond CA3YT=RR ended up 8 Canadian cents to yield 1.909 percent.
Canada's two-year bond CA2YT=RR gained 3 Canadian cents to yield 1.586 percent, while the 10-year bond CA10YT=RR added 19 Canadian cents to yield 3.088 percent. (Editing by Jeffrey Hodgson)