* Currency recoups nearly all of October's steep losses
* Improved sentiment buoys Canadian dollar
* Bond prices down as dealers await U.S. election results
By Frank Pingue
TORONTO, Nov 4 (Reuters) - The Canadian dollar rose to its highest level in three weeks versus the U.S. dollar on Tuesday as talk of interest rate cuts in Europe that could boost the European economy allowed the currency to extend its latest string of gains.
Bond prices were down across the curve as dealers avoided major commitments until seeing how equity markets react to results from Tuesday's U.S. presidential election.
At 9:35 a.m. (1435 GMT), the Canadian unit was at C$1.1658 to the U.S. dollar, or 85.78 U.S. cents, up from C$1.1809 to the U.S. dollar, or 84.68 U.S. cents, on Monday.
The rise in the currency follows gains recorded in the previous five sessions as the global economic concerns that dragged it down in October have started to signs of alleviating.
The Canadian dollar skidded 11.6 percent in October, but it has rallied nearly 11 percent since early last week.
"With easing in concerns about the global economy you are getting sort of less of the flight into the U.S. dollar, which had been earlier buoying the greenback to the detriment of a number of other currencies," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
"So with those pressures easing, you're seeing funds go back into a number of non-U.S. currencies including the Canadian dollar and that's why we are seeing some strengthening here."
The bout of turmoil in financial markets during October was due largely to concerns about overseas economies, but indications that central banks are ready to act to try and limit weakening in economic activity has helped to ease worries on that front for now.
There was talk in markets that both the European Central Bank and the Bank of England will cut interest rates on Thursday.
A rise in the price of oil, a key Canadian export and one that often dictates the currency's direction, was also offering support to the Canadian dollar on Tuesday.
BONDS STUCK LOWER
Canadian bond prices were all down and added to losses from the previous session as dealers steered clear of taking big positions until seeing the results of the U.S. election race between Democrat Barack Obama and Republican John McCain.
"People are trying to get a gauge of how equity markets are going to respond to the election and whether we see further indications of some easing in terms of the credit tightening," Ferley said.
Also, improved market sentiment in North American equities markets prompted a stocks rally and left dealers with little interest in more secure government debt.
Dealers were also awaiting the next batch of domestic data. September's building permits data and the Ivey Purchasing Managers Index for October are both set to be released on Thursday.
The key report of the week comes on Friday when the October jobs data is released. After an unexpected surge of 106,900 new jobs in September, analysts surveyed by Reuters expect a decline of 10,000 in October, and for the unemployment rate to rise to 6.2 percent from 6.1 percent.
The Canadian overnight Libor rate LIBOR01 was 2.3550 percent, up from 2.2833 percent on Monday.
Monday's CORRA rate CORRA= was 2.2482 percent, down from 2.2752 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond was down 2 Canadian cents at C$101.48 to yield 2.016 percent. The 10-year bond dropped 30 Canadian cents to C$103.25 to yield 3.840 percent.
The yield spread between the two-year and the 10-year bond was 172 basis points, down from 173 basis points at the previous close.
The 30-year bond was down 30 Canadian cents at C$111.25 to yield 4.311 percent. In the United States, the 30-year treasury yielded 4.344 percent. (Editing by Peter Galloway)
