* C$ rebounds after falling for three days
* Oil rises 4 percent
* Bond prices drop as stocks surge
By Cameron French
TORONTO, Nov 13 (Reuters) - The Canadian dollar rose for the first time in four days on Thursday, catching fire late in the session as oil prices rose and rallying stock markets whetted the market's appetite for risk, prompting a shift away from the safe haven of the U.S. dollar.
Bond prices dropped as market players shifted funds to rallying equity markets.
The Canadian currency ended the session at C$1.2115 to the U.S. dollar, or 82.54 U.S. cents, up from C$1.2374 to the U.S. dollar, or 80.81 U.S. cents, at Wednesday's close.
North American stocks soared from two-week lows after plunging in the previous session.
"Stocks have been raging, and that's just sent the market into a tizzy this afternoon. We've seen a big big selloff in the U.S. dollar and a big return to risk," said Steven Butler, director of foreign exchange at Scotia Capital.
The equity move also prompted a rally in oil prices, which helped drive the Canadian dollar higher. Oil climbed 4 percent, also helped by expectations OPEC could cut production later this month. [ID:nN13381271]
The equity rally overshadowed a report showing Canada's trade surplus shrank more than expected in September as the country sold less energy and fewer cars to the slowing U.S. market.
The surplus narrowed to C$4.49 billion ($3.65 billion), its lowest level since January, from a revised C$5.63 billion in August, according to Statistics Canada. The median forecast of analysts in a Reuters poll was for a surplus of C$4.95 billion.
BONDS PRICES DROP
Canadian bond prices dropped as the stock market rally prompted investors to pull funds from safe-haven government bonds.
"I think the tone was set by the stock market," said Carlos Leitao, chief economist at Laurentian Bank of Canada.
"Stocks were nuts over the last hours of trading."
The only remaining data for the week will be on Friday when the September survey of manufacturing is released.
The Canadian overnight Libor rate LIBOR01 was 2.5583 percent.
Thursday's CORRA rate CORRA= was 2.2437 percent, down from 2.2486 percent on Wednesday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond fell 14 Canadian cents to C$101.67 to yield 1.911 percent. The 10-year bond slid 75 Canadian cents to C$104.00 to yield 3.746 percent.
The yield spread between the two- and 10-year bond was 180 basis points, down from 186 basis points at the previous close.
The 30-year bond fell C$1.25 to C$111.35 to yield 4.305 percent. In the United States, the 30-year Treasury yielded 4.350 percent. (Editing by Rob Wilson)