* Canadian dollar comfortably off Tuesday’s multi-year low
* Currency records third straight winning session
* Bonds prices rebound from early slide to end higher
TORONTO, Oct 30 (Reuters) - The Canadian dollar finished higher versus the U.S. dollar for the third straight session on Thursday as improved market sentiment continued to help pull the currency off its recent four-year low.
Bond prices bounced back from an early selloff and finished higher across the curve on the possibility that the Bank of Canada could follow a slew of central bank rate cuts across the globe this week with another cut of its own.
The Canadian dollar closed at C$1.2180 to the U.S. dollar, or 82.10 U.S. cents, up 0.6 percent from C$1.2250 to the U.S. dollar, or 81.63 U.S. cents, at Wednesday’s close.
The sudden turnaround in the dollar this week has been credited to several factors that include higher prices for Canadian exports such as oil and gold and improved market sentiment that helped lure investors back to equity markets.
The latest rally in the Canadian currency, which rose to C$1.1897 to the U.S. dollar, or 84.05 U.S. cents, overnight for its highest level since Oct. 20, was pegged more to the notion that the U.S. dollar has risen too far, too fast.
“It seems to be part of a broader trend which is the U.S. dollar starting to stumble after having such an astonishing run,” said Eric Lascelles, chief economics and rates strategist at TD Securities. “So (it is) a reversal in the currency markets, where all the recognition is that perhaps the U.S. dollar has gone too far in the short term, and Canada took flight on that.”
The rise in the Canadian dollar, the first time it recorded three consecutive winning session in more than a month, represents a sharp turnaround from Tuesday, when it fell to C$1.3019 to the U.S. dollar, or 76.81 U.S. cents, the currency’s lowest level since September 2004.
Bond prices all ended higher as a wave of central bank rate cuts prompted some talk that the Bank of Canada could cut its key overnight interest rate further.
“(The rally) may just be the market beginning to price in a little extra cutting in Canada after seeing how serious the U.S. is,” said Eric Lascelles, chief economics and rates strategist at TD Securities.
The U.S. Federal Reserve did as expected on Wednesday cut U.S. rates by half a percentage point to 1 percent in a bid to revive a sagging economy.
China, Hong Kong, Norway and Taiwan also cut rates in the past week, and pressure mounted on the Bank of Japan to reduce rates after it meets on Friday.
The Bank of Canada cut its key rate by 75 basis points in October and is scheduled to make another rate announcement on Dec. 9. The overnight rate in Canada is 2.25 percent.
Also helping to support the rally in bond prices was a report that showed a sharper-than-expected decline in Canadian industrial product and raw materials prices in September.
The two-year bond rose 10 Canadian cents to C$101.47 to yield 2.023 percent. The 10-year bond rallied 25 Canadian cents to C$104.25 to yield 3.717 percent.
The yield spread between the two-year and the 10-year bond moved to 173 basis points from 167 basis points at the previous close.
The 30-year bond ended up 50 Canadian cents at C$112.50 to yield 4.241 percent. In the United States, the 30-year Treasury yielded 4.337 percent. (Editing by Peter Galloway)