* C$ sticks near highest level since Jan. 12
* Higher commodity prices and weak US$ aiding C$'s gain
* Little reaction to priced-in Canada political news
* Bonds lower as stocks gain, looming supply concerns
By Frank Pingue
TORONTO, Jan 28 (Reuters) - Canada's dollar held near a two-week high on Wednesday after the country's opposition Liberals made a widely expected decision to support the federal budget and prevent the fall of the ruling Conservatives.
The currency had earlier rallied as much as 2 percent to C$1.2025 or 83.16 U.S. cents, its highest level since Jan. 12, helped by firmer prices for key Canadian exports like oil and broader U.S. dollar weakness.
News that the Liberals agreed to support the federal budget if certain conditions are met [ID:nN28521262] did not trigger any substantial moves in the domestic currency.
Even if Liberal leader Michael Ignatieff decided to vote against the budget, some experts said a selloff in the Canadian currency was unlikely given improved global sentiment.
"The shock would've been if the Liberals had done something to indicate that they were going to cut short the session of parliament or vote against the budget," said David Watt, senior currency strategist at RBC Capital Markets.
"In the backdrop we have the rebound in confidence globally ... people aren't looking for a reason to sell risk."
According to Watt, sentiment has improved in part because of signs that the British pound is not going to crack anytime soon after Barclays reassured investors that it would report healthy profits and not need to seek capital from investors or the state. [ID:nLQ266271]
Gains made by the Canadian dollar earlier in the session were mostly intact as commodity prices held at higher levels.
At 1:40 p.m. (1840 GMT), the Canadian unit was at C$1.2091 to the U.S. dollar, or 82.71 U.S. cents, up from C$1.2263 to the U.S. dollar, or 81.55 U.S. cents, at Tuesday's close.
"We're seeing a reversal of risk aversion trades," said Sal Guatieri, senior economist at BMO Capital Markets.
Canadian bond prices remained lower across the curve as dealers opted to return to riskier assets like equities while supply concerns continued to weigh.
The S&P/TSX composite index .GSPTSE was up 1.8 percent at midafternoon, led by the influential financial index.
"The market is digesting the looming onslaught of new government issues over the next one to two years to finance the budget spending," said Guatieri. "That higher supply just means downward pressure on the bond market."
The two-year bond was down 13 Canadian cents at C$102.46 to yield 1.388 percent, while the 10-year bond fell 27 Canadian cents to C$110.70 to yield 2.930 percent.
The 30-year bond fell 40 Canadian cents to C$122.88 to yield 3.691 percent. In the United States, the 30-year Treasury yielded 3.303 percent. (Additional reporting by Jennifer Kwan in Toronto; Editing by Jeffrey Hodgson)