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TORONTO (Reuters) - Canada's dollar strengthened against the greenback on Tuesday and reached multi-year highs versus the euro as investors moved back into risk-sensitive assets, including equities and commodities.
With sentiment in financial markets improving during the day, the Canadian dollar at one point strengthened more than one U.S. cent to C$1.0472, or 95.49 U.S. cents.
Against the euro, it hit C$1.2507, or 79.96 euro cents, its strongest level in almost a decade against the single currency.
"The Canadian dollar appears to have decoupled from the sovereign debt concerns in Europe," said Michael O'Neill, managing director at Knightsbridge Foreign Exchange, a commercial foreign exchange dealer.
"At this point in time the strong Canadian fundamentals are trumping concerns over Europe."
The move was supported by reassuring comments by Federal Reserve Chairman Ben Bernanke on Monday that the U.S. economy will likely avoid a "double-dip" recession and that European leaders are committed to ensuring the survival of the euro.
European Union finance ministers on Tuesday said they must do more to restrain spending and contain a debt crisis that threatens to spread to countries that do not use the euro such as Hungary and Britain.
But earlier, a report by Fitch Ratings that the UK faced a "formidable" fiscal challenge put any real sense of stability into question.
Risk-averse investors piled into gold, a key Canadian export, sending prices for the precious metal to a record dollar high amid fears that Europe's credit contagion could hamper global economic growth.
The Canadian dollar closed the North American session at C$1.0485 to the U.S. dollar, or 95.37 U.S. cents, up from Monday's finish of C$1.0602 to the U.S. dollar, or 94.32 U.S. cents.
"Canada's selling fatigue has set in and the market is starting to look beyond the immediate euro issue and looking at Canadian fundamentals longer term, suggesting that Canada can go back through to parity," O'Neill added.
He said a push below C$1.0380 could spur a move back toward one-for-one footing with the U.S. dollar.
Earlier, Camilla Sutton, a currency strategist at Scotia Capital, suggested it appeared that central banks and big institutional players may be buying the Canadian dollar, along with other commodity-based currencies, to diversify their holdings.
With stock prices rising, Canadian bond prices edged lower across the curve, mirroring U.S. Treasuries as investors unwound some safe-haven holdings and prepared for this week's $70 billion government bond supply.
The two-year Canadian government bond was down 10 Canadian cents to yield 1.676 percent, while the 10-year bond fell 25 Canadian cents to yield 3.322 percent.
Additional reporting by John McCrank; Editing by Jeffrey Hodgson