* C$ rallies as high as 85.38 U.S. cents
* Rally follows upbeat domestic data
* Bond prices lower as equities rally (Adds details and comments)
By Frank Pingue
TORONTO, May 6 (Reuters) - The Canadian dollar reclaimed ground lost overnight and rose versus the U.S. currency on Wednesday, due partly to domestic data that came in much stronger than expectations.
Canada's currency rose as high as C$1.1713 to the U.S. dollar, or 85.38 U.S. cents, up comfortably from an overnight low of C$1.1826 to the U.S. dollar or 84.56 U.S. cents.
The domestic currency hit the session high moments after data showed Canada's Ivey Purchasing Managers Index rose in April after decreasing in the previous month. [ID:nTAR001663]
That data allowed the currency to tack on to the meatier gains recorded earlier when data showed the value of building permits in Canada rose by 23.5 percent in March from February after five months of declines. [ID:N06546133]
"The market isn't looking for reasons to sell risk, it's looking for reasons to buy risk, so the building permits data certainly played to the audience there," said David Watt, senior currency strategist at RBC Capital Markets.
"I wouldn't necessarily put a lot of stock into the number itself because when you are looking for good news, which the market seems to be doing nowadays, it found it and caused it to unwind a lot of the overnight losses in the Canadian dollar."
By 10:15 a.m. (1415 GMT), the Canadian dollar had retreated slightly to C$1.1736 to the U.S. dollar or 85.21 U.S. cents, still up from C$1.1761 to the U.S. dollar, or 85.03 U.S. cents, at Tuesday's session close.
Data that showed U.S. private employers cut fewer jobs than expected last month also helped boost sentiment and convinced some investors to move into perceived higher-risk currencies like the Canadian dollar, according to Watt.
BONDS PRICES PINNED LOWER
Canadian bond prices were lower across the curve as the latest upbeat data from both sides of the border triggered a rally in riskier assets like stocks and curbed appetite for more secure assets like government debt.
Toronto's key stock index was up more than 1.5 percent shortly after the open while the Dow Jones industrial average was up 0.5 percent.
The move in bond prices was held in check by the upcoming release of key Canadian and U.S. jobs data for April due on Friday.
The benchmark two-year Canadian government bond was down 2 Canadian cents at C$100.46 to yield 1.026 percent, while the 10-year bond fell 10 Canadian cents to C$105.90 to yield 3.064 percent.
The 30-year bond was down 15 Canadian cents at C$119.65 to yield 3.849 percent. In the United States, the 30-year Treasury yielded 4.061. (Editing by Jeffrey Hodgson)