* C$ touches C$0.9520 to the US$, or $1.0504
* Strongest level since May 11
* Gains after European bank "stress test" results
* Rising oil, commodity prices support
By Trish Nixon
TORONTO, July 15 (Reuters) - Canada's dollar strengthened to a two-month high against the U.S. currency on Friday, boosted by commodity price gains and the country's relatively healthy fiscal position compared to the United States and Europe.
The price of oil, a major Canadian export, rose as traders focused on the potential for a weaker greenback, given the uncertainty surrounding U.S. talks meant to cut deficits and avert a debt default. [O/R]
The results of "stress tests" showing eight European banks are not strong enough to withstand a prolonged recession and need to raise 2.5 billion euros in capital also highlighted troubles there. [ID:nL9E7G9005]
"(The Canadian dollar) is grinding a little bit stronger with some of the commodities doing well. Crude oil especially is up again today. Stocks are pointing in the right direction," said Steve Butler, director of foreign exchange trading with Scotia Capital in Toronto.
Butler noted the currency has also benefited because Canada has not experienced the level of of government debt concerns that U.S. and European policymakers are struggling to control.
At 12:40 p.m (1640 GMT), the Canadian dollar was at C$0.9543 to the U.S. dollar, or $1.0479, well up from Wednesday's North American finish of C$0.9610, or $1.0406.
It rose as high as C$0.9520 to the U.S. dollar, or $1.0504, the strongest level since May 11.
Jack Spitz, managing director of foreign exchange with National Bank of Canada, said news from Europe and the United States would set the market's direction in the near term.
"The market is still trading off the headlines," he said. "These are critical event risks that are quite meaningful in terms of directing the market's attention."
The Canadian dollar made gains despite negative North American economic data.
U.S. reports showed consumer confidence plummeted to its lowest level in more than two years in early July and factory output stalled in June, further diminishing hopes of a quick economic rebound in the second half of the year. [ID:nN1E76E0DF]
Canadian manufacturing sales fell by 0.8 percent in May from April, a drop that was significantly worse than expected as the auto industry failed to bounce back quickly from parts shortages resulting from the earthquake and tsunami that hit Japan in March. [ID:nN1E76E0OK]
Canadian government bond prices were higher across the curve, as concerns about U.S. and European debt spurred investors to seek safe-haven assets.
The two-year bond CA2YT=RR rose 8.5 Canadian cents to yield 1.429 percent. The 10-year bond CA10YT=RR was up 45 Canadian cents to yield 2.898 percent.
Canadian bonds outperformed U.S. Treasuries, with the Canadian 10-year yield 4 basis points below its U.S. counterpart. The yields on the two bonds were the same on Thursday. (With additional writing by Jeffrey Hodgson; editing by Rob Wilson)