* C$ stages another rally back above 80 U.S. cents
* Risk appetite and crude prices fuel latest gain
* Bond prices stuck lower as risk appetite returns (Adds details and comments)
TORONTO, Feb 19 (Reuters) - The Canadian dollar rose versus the U.S. greenback for a second straight session on Thursday and topped the 80 U.S. cents level as risk appetite returned and the price of crude climbed.
Risk sentiment improved overnight, which gave the Canadian currency a lift to C$1.2467 to the U.S. dollar, or 80.21 U.S. cents, before backing off slightly.
That added to gains recorded in the previous North American session and further made up for a chunk of the 1.6 percent skid the currency suffered earlier this week when concerns about a deepening global recession buoyed the low-yielding greenback.
"What's driving Canada right now is overall weakness seen in the U.S. dollar, but more importantly ... an unwind of Japanese yen longs," said Jack Spitz, managing director of foreign exchange at National Bank of Canada.
At 9:25 a.m. (1425 GMT), the Canadian unit was at C$1.2497 to the U.S. dollar, or 80.02 U.S. cents, up from C$1.2581 to the U.S. dollar, or 79.48 U.S. cents, at Wednesday's close.
The yen remained under pressure due to worries about the Japanese economy and political uncertainty. Meanwhile, world stocks rallied on some better-than-expected corporate results, helping to cool extreme risk aversion and denting the safe-haven bid to the U.S. dollar. [FRX/]
The Canadian dollar also drew some support from oil prices that headed toward $36 a barrel ahead of U.S. inventory data and as the U.S. dollar weakened. Canada is a key oil producer and its currency is often influenced by price swings in the commodity.
Talk of of potential bidders for a stake in a Teck Cominco TCKb.TO coal operation, said to be worth about $2.5 billion, was also lending the domestic currency some support this week.
BOND PRICES DROP
Canadian bond prices were down across the curve, extending the previous session's drop, as dealers regained an appetite for risk and pushed aside data that showed Canada's composite leading indicator fell more than expected.
Some of the drop in domestic bond prices was being pegged to spillover from the bigger U.S. Treasury market, which was down after data showed U.S. producer prices rose faster than expected in January. [ID:nN18449971]
"The higher PPI number has had a little bit to do with it but it's probably more to do with risk," said Benjamin Reitzes, economist at BMO Capital Markets.
Reitzes said the leading indicator, while a closely watched report, did not play a role in the moves in bond prices, which continued to relinquish more of the hefty gain recorded earlier this week when investors unloaded riskier assets.
The next Canadian data due will be the more key consumer price index report for January on Friday, which is expected to show the inflation rate held steady in January at 1.2 percent year-on-year, while consumer prices fell 0.2 percent on the month.
"It will be watched closely, but right now inflation isn't the big worry, so unless it's a big surprise I don't anticipate big moves (in bond prices)," said Reitzes.
The interest-rate sensitive two-year bond was down 13 Canadian cents at C$102.50 to yield 1.316 percent, while the 10-year bond dropped 43 Canadian cents to C$110.85 to yield 2.906 percent.
The 30-year slipped 75 Canadian cents to C$124.35 to yield 3.617 percent. (Reporting by Ka Yan Ng, additional reporting by Frank Pingue; Editing by Andrea Ricci)