* C$ ends at highest closing level since Oct. 22
* Bond market closed until Thursday (Recasts)
By Frank Pingue
TORONTO, Nov 10 (Reuters) - Canada's dollar erased early losses to reach its highest close in nearly three weeks versus the U.S. currency on Tuesday, building on momentum from a sharp rise in the previous session.
The currency rose as high as C$1.0486 to the U.S. dollar, or 95.36 U.S. cents, comfortably off its overnight low of C$1.0610 to the U.S. dollar, or 94.25 U.S. cents.
Analysts said the turnaround in the commodity-linked currency was helped by oil prices that held near $80 a barrel and some renewed risk appetite given a recent pledge by the Group of 20 to keep economic stimulus policies in place. But they also cited broader U.S. dollar weakness.
"The U.S. dollar is generally mixed today so the Canadian dollar is definitely outperforming," said Camilla Sutton, currency strategist at Scotia Capital. "(There's) ongoing interest in the Canadian dollar and negativity towards the U.S. dollar."
The U.S. currency remained out of favor partly because investors expect benchmark U.S. interest rates to remain near zero into 2010 as the economy there recovers from a harsh recession.
The domestic currency's rally followed a move higher on Monday that was driven by the G20 promise to maintain stimulus policies, which also spurred a rise in commodity prices.
According to Sutton, the Canadian dollar's ability to close out Monday's session stronger than a support level at C$1.0592 likely implies there is further upside for the currency.
The Canadian dollar closed at C$1.0501 to the U.S. dollar, or 95.23 U.S. cents, up from C$1.0574 to the U.S. dollar, or 94.57 U.S. cents, at Monday's close. It marked its highest close since Oct. 22.
A Reuters poll from earlier this month showed the Canadian dollar is expected to stay in a tight range near par with the greenback for the next year given strong commodity prices and signs of global economic recovery. [ID:nN04520863]
BONDS FINISH FLAT
Canadian bond prices, with no domestic data to consider, ended a shortened session barely changed on either side of the break-even level ahead of data due later this week.
The next domestic data due out will be Thursday's new house prices report for September, which will be followed by Friday's trade gap report for September.
The Canadian bond market will be closed on Wednesday for Remembrance Day, while the U.S. bond market will be closed in observance of Veterans Day.
The two-year bond CA2YT=RR rose 1 Canadian cent to C$99.69 to yield 1.404 percent, while the 10-year bond CA10YT=RR dropped 8 Canadian cents to C$101.90 to yield 3.513 percent. (Editing by Jeffrey Hodgson)