* C$ higher at 94.13 U.S. cents
* Recovers from six-week low hit overnight
* Bonds hit by strong U.S. data, Canada outperforms
(Updates to close, adds quotes)
By Claire Sibonney
TORONTO, Feb 1 (Reuters) - The Canadian dollar strengthened on Monday, rising off a six-week low against the U.S. currency in the overnight session, as data showing a jump in U.S. manufacturing fueled investor appetite for riskier assets.
The Canadian currency appreciated for the first time in 10 sessions, mirroring gains in commodity and equity markets, which rose partly on news that U.S. manufacturing expanded in January at its fast pace since 2004. [ID:nN01186177]
"The risk aversion play which saw a lot of investors move back into the U.S. dollar in recent weeks may be abating as there are more signs of improving growth not only in the United States but probably in Canada as well," said Aron Gampel, deputy chief economist at Scotiabank.
Gampel added that recent fears over emerging markets such as China tightening monetary policy has been largely overplayed.
The Canadian dollar finished the North American session at C$1.0624 to the U.S. dollar, or 94.13 U.S. cents, according to the official Bank of Canada close. On Friday, it closed at C$1.0693 to the U.S. dollar, or 93.52 U.S. cents.
Overnight, the currency weakened to C$1.0722 to the U.S. dollar, or 93.27 U.S. cents, its weakest since Dec. 18. But it edged off that low as U.S. and Canadian stocks rose and the price of oil firmed, showing risk appetite was on the rise. [O/R]
"The outlook is still one of optimism...as long as we have the emerging markets remaining in a relatively strong growth mode commodity prices are likely to still remain well bid," Gampel said.
Gold rose 2 percent, posting its biggest daily gain in three months, as a combination of the oil rally, dollar weakness and strong U.S. data boosted bullion's investment appeal. [GOL/]
"Going forward it's going to depend on what equity markets do from here. If the rally continues to build I think we'll continue to see the Canadian dollar strengthen and vice versa," said George Davis, chief technical strategist at RBC Capital Markets.
The data calendar for Canada is empty until Thursday when a report on building permits for December and a gauge of purchasing activity for January are due. But the main focus will be on Friday when market players look for further evidence of an economic recovery in the Canadian and U.S. jobs data. ECONCA.
CANADA DEBT OUTPERFORMS
Canadian bonds were flat to slightly lower alongside their sliding U.S. counterparts after the morning's strong manufacturing data boosted riskier assets.
The two-year bond CA2YT=RR was unchanged at C$100.34 to yield 1.33 percent, while the 10-year bond CA10YT=RR fell 28 Canadian cents to C$102.90 to yield 3.38 percent.
Canadian government bonds outperformed U.S. Treasuries across the curve, with the yield on the Canadian 10-year bond 28 basis points below its U.S. counterpart, compared with 24 basis points on Friday.
"No matter where you look right now everyone seems to be liking Canada for a variety of reasons, whether it's the commodity play or whether it's the multi-year period where fiscal imbalances have been performing better than they have in other countries," said Gampel.
"The level of indebtedness in this country by any measure is going to be less that the United States."
Gampel said as private sector credit demand begins to increase and central banks begin to raise rates then yields should start rising, but not for now. (Reporting by Claire Sibonney; Editing by Jeffrey Hodgson)