* C$ finishes at 89.54 U.S. cents
* Canadian housing starts rise in May
* Bonds mostly lower; follow U.S. Treasuries (Adds details, quotes)
By Jennifer Kwan
TORONTO, June 8 (Reuters) - The Canadian dollar rose against the greenback on Monday, underpinned by Canadian housing data that helped fan optimism the economy is set to recover and by a move by Toronto equities off their early lows.
After falling as low as C$1.1291 to the U.S. dollar, or 88.57 U.S. cents, the currency finished up at C$1.1168 to the U.S. dollar, or 89.54 U.S. cents. That's up slightly from C$1.1190 to the U.S. dollar, or 89.37 U.S. cents, at the close of Friday's session.
"We are getting a little bit of traction from the better than expected housing starts numbers," said Charmaine Buskas, senior economics strategist at TD Securities.
"It's just one data point so far but it does suggest that at least in the month of May there was a little bit of upside in the Canadian housing market not only in terms of the headline number, but in terms of the composition."
Canadian housing starts rose 9.2 percent in May and the increase was broadly based, encompassing both single and multiple segments, the Canada Mortgage and Housing Corp said. [ID:nN08273370]
Also supporting the Canadian dollar was the late-day bounce-back of Toronto's main stock market index from its sharp drop in early trade, which suggested "a little bit appetite for risk," Buskas said.
The S&P/TSX composite index .GSPTSE closed down 20.17 points, or 0.19 percent, at 10,549.12 after dropping 1.8 percent right after the open.
Matthew Strauss, senior currency strategist at RBC Capital Markets, said the glow from better than expected U.S. employment numbers on Friday [FRX/] was lingering in the market.
"If we do see a recovery in the second half of the year that will benefit Canada," Strauss said. "The news that is positive for the U.S. dollar is indirectly positive for the Canadian dollar."
The greenback strengthened on speculation the U.S. Federal Reserve may have to tighten interest rates sooner than anticipated following Friday's U.S. jobs data, which showed far fewer job losses than anticipated.
BONDS MOSTLY LOWER
Canadian bond prices were mostly lower, in line with the U.S. Treasuries market, where yields spiked to seven-month highs on speculation that the slowing rate of job losses in the United States pointed to an economic recovery.
That belief has led to fears that the Federal Reserve will raise interest rates sooner than expected. [ID:nN08382300]
"There's weakness from the U.S. Treasury market on early speculation the Fed may tighten," said Sal Guatieri, senior economist, BMO Capital Markets.
The benchmark two-year government bond fell 28 Canadian cents to C$99.68 to yield 1.415 percent, while the 10-year bond fell 75 Canadian cents to C$101.85 to yield 3.528 percent.
The 30-year bond dropped 55 Canadian cents to C$116.55 to yield 4.010 percent. The comparable U.S. Treasury issue yielded 4.6432 percent.
Canadian bonds mostly underperformed U.S. Treasuries across the curve. The Canadian 30-year bond was about 63 basis points below the U.S. 30-year yield, compared with about 66 basis points below on Friday. (Reporting by Jennifer Kwan; editing by Peter Galloway)