* Canadian dollar finishes at C$1.0545 to the greenback
* Bonds prices drift lower after weak U.S. auction (Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Dec 9 (Reuters) - The Canadian dollar rose against the U.S. currency on Wednesday as appetite for risk returned on the notion that Tuesday's big drop on debt fears in Greece and Dubai and the Bank of Canada's interest-rate stance had been overdone.
"Generally the view here is Canada is oversold. The U.S. dollar bounce did not treat Canada kindly," said Firas Askari, head of foreign exchange trading at BMO Capital Markets.
Prices for gold, a major Canadian commodity, also moved off early lows, stiffening the Canadian dollar's spine and helping Toronto stocks bounce back from a 100-point-plus loss and finish slightly higher on the day. [.N] [.TO]
But oil, another key Canadian export, sank more than 2 percent to below $71 a barrel on data that showed larger-than-expected U.S. supply builds, fueling concerns about weak demand. [O/R]
"If you look at fundamentals, oil is down and basically the equity market is flat. There is no real direction," said Matthew Strauss, senior currency strategist RBC Capital Markets.
"It looks much more like intraday flows and technical breaks, momentum, rather than underlying fundamentals driving the currency."
Wednesday's rise followed a drop on Tuesday when global debt concerns rattled markets. Credit agency Fitch cut Greece's credit rating as worries about Dubai's debt woes resurfaced, keeping the U.S. dollar buoyant as a safe haven. [FRX/]
The Bank of Canada's reiteration on Tuesday that it would leave its benchmark interest rate unchanged until mid 2010 also disappointed some in the market after some recent bullish economic data. [ID:nN08193566]
The Canadian dollar finished at C$1.0545 to the U.S. dollar, or 94.83 U.S. cents, up from Tuesday's finish at C$1.0639 to the U.S. dollar, or 93.99 U.S. cents. It rose as high as C$1.0516 to the U.S. dollar, or 95.09 U.S. cents.
BOND PRICES LOWER
Canadian bond prices edged lower after rising the previous day on flight-to-safety bids, while also tracking U.S. Treasuries, which sagged on Wednesday on supply concerns after a weak 10-year debt auction. [US/]
"The buying support wasn't as strong as expected so dealers are sitting on inventory they couldn't sell," said Sheldon Dong, fixed income analyst, TD Waterhouse Private Investment.
"It's pretty much a U.S. story."
The Bank of Canada said on Wednesday its C$3.2 billion auction of 1.75 percent Government of Canada bonds due March 1, 2013, produced an average yield of 1.937 percent. [ID:nTOR006999]
The two-year Canadian government bond CA2YT=RR ticked 1 Canadian cent lower to C$100.09 to yield 1.206 percent. The 10-year bond CA10YT=RR sank 47 Canadian cents to C$117.38 to yield 3.957 percent.
Canadian bonds mostly outperformed U.S. Treasuries across the curve. The Canadian two-year bond was 46 basis points above the comparable U.S. 2-year yield, compared with about 48 basis points above on Tuesday. (Reporting by Jennifer Kwan; editing by Peter Galloway)