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* C$ best performer among the major currencies
* Rally aided by domestic bank quarterly earnings
* Bond prices narrowly mixed across the curve (Adds details)
By Frank Pingue
TORONTO, Feb 26 (Reuters) - Canada's dollar surged more than 1 percent on Thursday given the combination of higher commodity prices, a weaker U.S. currency and earnings from domestic banks that continue to outshine foreign peers.
The move put the Canadian currency at the top end of its recent trading range, where it has attracted buying interest each time it fell through the C$1.26 level.
The Canadian currency shot as high as C$1.2395 to the U.S. dollar, or 80.68 U.S. cents, comfortably above its Wednesday close of C$1.2546 to the U.S. dollar, or 79.71 U.S. cents.
A rally in prices for oil, a key Canadian commodity and export, was one of the main drivers that helped the Canadian dollar recoup the entire drop recorded in Wednesday's session.
The currency's rise was also aided by quarterly earnings from Canadian banks that indicated they have been less damaged by the financial crisis than lenders in the United States and elsewhere.
Combined, the factors helped the Canadian dollar to be the best-performing currency versus all the majors on Thursday.
"There certainly is a Canadian only aspect to this and it does come down to higher commodity prices, the U.S. dollar weakness and banks faring quite well," said Eric Lascelles, chief economics and rates strategist at TD Securities.
The weakness in the greenback followed data that showed the number of U.S. workers continuing to claim jobless benefits hit a fresh record in the second week of February,
By 9:25 a.m. (1425 GMT), Canada's dollar was at C$1.2459 to the U.S. dollar, or 80.26 U.S. cents.
Canadian bond prices, with no key domestic economic data to consider, were narrowly mixed across the curve as demand for government debt has been curbed somewhat in recent sessions.
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.
But the current account data is not expected to have a huge impact on Canada's bond market as it will be followed by gross domestic product figures on Monday, which are expected to show the Canadian economy shrank during the fourth quarter of 2008.
That will be followed by the Bank of Canada's interest rate announcement on March 3, when some expect the central bank to cut its key interest rate by a half point to 0.50 percent.
The interest-rate sensitive two-year bond was up 3 Canadian cents at C$102.61 to yield 1.241 percent, while the 10-year bond fell 8 Canadian cents to C$110.35 to yield 2.962 percent.
The 30-year bond shed 35 Canadian cents to C$122.55 to yield 3.705.
Editing by Chizu Nomiyama