TORONTO (Reuters) - Canada's dollar hit a 14-month high within striking distance of parity with a weakening U.S. dollar on Tuesday, but as the session progressed it relinquished some of the gains as the market's appetite for risk waned.
The Canadian currency charged to C$1.0265 to the U.S. dollar, or 97.42 U.S. cents, its loftiest level since August 2008, sparking talk that it could soon move above the greenback for the first time since July 2008.
But the currency went on to slide as low as C$1.0375 to the U.S. dollar, or 96.39 U.S. cents, in a North American session where investors appeared to lose some interest in snapping up risky assets such as the Canadian dollar.
It hit a session low after Canadian Prime Minister Stephen Harper said too rapid a rise in the currency could damage the country's economic recovery.
"Some of the move was profit-taking and some of it was the comments that were attributed to Stephen Harper," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"Setting aside the price action today there seems to be a relatively widespread belief that the U.S. dollar is going to continue to weaken and that will contribute to a move to parity in dollar/Canada."
The early strength in the currency that led it to the 14-month high was attributed to lofty commodity prices and recent upbeat Canadian economic data that ignited talk about whether the Bank of Canada will raise interest rates sooner than expected.
That sentiment all but vanished as the session wore on.
The Canadian dollar went on to close the session at C$1.0365 to the U.S. dollar, or 96.48 U.S. cents, up from C$1.0444 to the U.S. dollar, or 95.75 U.S. cents, at Friday's close.
The Bank of Canada did not offer an official closing value for the currency on Monday as it was the Thanksgiving Day holiday in Canada.
The latest data out of Canada showed new house prices rose for the second straight month in August, up 0.1 percent, but below expectations for a 0.2 percent climb.
Canadian bond prices snapped a two-session skid to end higher across the curve, tracking a move in the bigger U.S. Treasury market as overseas data curbed expectations for a strong global economic recovery.
The latest data to spark demand for more secure government debt was a measure of German investor morale that unexpectedly fell in October, suggesting that Europe's largest economy will recover only gradually.
That report followed recent U.S. unemployment data that revealed bigger-than-forecast job losses.
The two-year bond rose 11 Canadian cents to C$99.16 to yield 1.653 percent, while the 30-year bond rose 45 Canadian cents to C$117.65 to yield 3.945 percent.
The Canadian market mostly underperformed U.S. Treasury bonds, with the 30-year Canadian yield about 23 basis points below its U.S. counterpart, compared with around 26.7 basis points on Friday.
Editing by Peter Galloway