* C$ rallies to 84.52 U.S. cents
* Move exaggerated in thin trade
* Bond prices lower ahead of U.S. data
TORONTO, May 1 (Reuters) - The Canadian dollar shot to its highest level in nearly four months versus the U.S. dollar on Friday as improved investor sentiment convinced traders to take on perceived higher-risk currencies.
Just before 7:00 a.m. (1100 GMT) the domestic currency rallied as high as C$1.1832 to the U.S. dollar, or 84.52 U.S. cents, which marked its highest level since Jan. 9.
The move higher added to gains recorded during the past two sessions, but this was believed to be exaggerated given the thin and relatively volatile trading with European markets closed due to the May Day holiday.
By 7:35 a.m. (1135 GMT) the Canadian unit had retreated slightly to C$1.1870 to the U.S. dollar, or 84.25 U.S. cents, still up from C$1.1930 to the U.S. dollar, or 83.82 U.S. cents, at Thursday's close.
The Canadian dollar's run-up, however, appeared more a result of U.S. dollar weakness rather than any Canadian dollar specific fundamentals like higher oil prices or upbeat domestic data.
Instead, with U.S. stock futures pointing to a higher open, on Friday on optimism the economic slump is waning, investors opted to snap up the currencies regarded as higher risk, like the Australian and Canadian dollars.
"Most of the other majors are higher against the (U.S.) dollar generally so it's not really much Canada specific today," said Adam Cole, global head of FX strategy at RBC Capital Markets in London. "So it's generally, mostly a (U.S.) dollar phenomenon more than a Canadian dollar phenomenon."
Canadian bond prices, with no domestic data to consider, were lower across the curve alongside the bigger U.S. Treasury market ahead of a monthly U.S. manufacturing report that could stir more optimism on the economic recovery there. (Editing by Theodore d'Afflisio)
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