* C$ ends higher at C$0.9639 per US$, or $1.0375
* Bond prices slide (Updates to close)
TORONTO, April 5 (Reuters) - Canada's dollar held near three-year highs against the U.S. dollar on Tuesday, resuming an upward trend in the face of dipping U.S. oil prices.
Brent crude jumped to a 2-1/2 year peak on ongoing conflict in the oil-exporting regions of the Middle East and Africa, while U.S. oil prices, which are a bigger influence on Canada's currency, slipped. Still, the elevated prices for oil have been a key support for the commodity-linked currency. [O/R]
Other commodity prices, such as copper, were able to brush off an interest rate hike in China, the country's second increase this year.
"As long as they don't pull back significantly I think you're going to continue to see strength in Canada. On top of that, there's ongoing M&A activity," said Benjamin Reitzes, economist at BMO Capital Markets.
Canada has seen a slew of multibillion-dollar deals since the start of the year, with two Toronto-listed miners currently facing unsolicited takeover bids.
Miners, particularly base metal producers, are expected to drive Canadian merger and acquisition activity through 2011, top bankers said on Tuesday at the Toronto leg of the Reuters Global Mergers and Acquisitions Summit. [ID:nN05133056]
The currency CAD=D4 closed at C$0.9639 to the U.S. dollar, or $1.0375, up from Monday's North American finish of C$0.9675 to the U.S. dollar, or $1.0336, when it had snapped a five-day rising streak.
The Canadian dollar demonstrated resiliency compared with its sister commodity currency, the Australian dollar, which retreated from Monday's 29-year highs, partly on China's rate move and as the Reserve Bank of Australia kept interest rates unchanged as widely expected. [ID:nL3E7F40J2]
The Canadian dollar rose as high as C$0.9628 to the U.S. dollar, or $1.0386, approaching Monday's three-year high at C$0.9616 to the U.S. dollar, or $1.0400.
"(China's rate hike) was a little bit earlier than the market expected. Aussie sold off quite a bit, but Canada hasn't followed suit. It's a little surprising," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"You'd think with the little bit of risk aversion that we've seen overnight that Canada might be a little bit weaker ... I guess it goes to show the resiliency in the currency."
BONDS FALL, FOCUS ON CENTRAL BANKS
Canadian government bond prices slid across the curve, tracking their U.S. counterparts, with the focus on when North American central banks might raise interest rates.
A slew of contrasting comments from U.S. Federal Reserve officials recently, including Fed Chairman Ben Bernanke on Monday, also had the markets parsing what it all means for the U.S. central bank's policy outlook.
The split over when to start tightening monetary conditions again was also evident in the Federal Open Market Committee's minutes for its March 15 policy-setting meeting. [ID:nN04294041] [ID:nFEDAHEAD]
By contrast, market participants are betting the Bank of Canada is likely to start raising rates later this year, with a September increase fully priced in, according to a Reuters calculation of yields of overnight index swaps. BOCWATCH
Market pricing shows the central bank is unlikely to raise rates next week at its April 12 policy-setting, although observers expect it will soon lay the groundwork in its Monetary Policy Report for its resumption of rate hikes. Canada's key rate has stood at 1 percent since September.
"We expect the Bank of Canada to be a little more hawkish when they meet next week and then the MPR to (have) an upgraded forecast," said Reitzes.
The two-year bond CA2YT=RR fell 9 Canadian cents to yield 1.862 percent, while the 10-year bond CA10YT=RR was off 11 Canadian cents to yield 3.373 percent. (Reporting by Ka Yan Ng and Solarina Ho; editing by Rob Wilson)