* C$ rallies to C$0.9425 vs US$, or $1.0610
* Bonds prices move lower across curve
By Claire Sibonney
TORONTO, July 21 (Reuters) - The Canadian dollar rallied against the greenback on Thursday to its strongest in more than 3-1/2 years after the release of draft conclusions from a euro zone meeting designed to tackle contagion from Greece's debt woes.
The Canadian dollar began its rally earlier this week after the Bank of Canada signaled it was closer to raising interest rates.
According to draft summit conclusions seen by Reuters, the euro zone bailout fund, the EFSF, will provide loans to Greece, Ireland and Portugal at a lower interest rate and for longer maturities. [nB5E7HN032]
Once those headlines began to emerge, the currency CAD=D4 climbed to C$0.9425 to the U.S. dollar, or $1.0610, its best level since November 2007, when it hit a modern-day high.
"The short term catalyst was more about global factors ... in the sense that the euro just popped higher on headlines of what appeared to be a leak of the euro zone summit conclusions and managed to spill over into the (U.S.) dollar being sold against everything including Canada," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
"The leak, on Reuters in fact, of some of the main points from the EU summit that's going on today, ticked some of the boxes that the market was wanting to see basically."
Earlier, riskier assets were being sold off in reaction to euro zone officials admitting openly that a selective default for Greece was on the cards.
At 9:04 a.m. (1304 GMT), the currency CAD=D4 stood at C$0.9437 to the U.S. dollar, or $1.0597, up from Wednesday's North American session close at C$0.9474 to the U.S. dollar, or $1.0555.
Cole said after the currency broke the 2011 high, there wasn't much technically in the way of returning to 2007 levels, when the Canadian dollar hit $1.10. "But to get down there it will require markets to continue to take this positive stance on risk that they have been doing today," he said.
Supporting the currency earlier this week, the central bank used surprisingly hawkish language in its rate decision statement, as it held its overnight rate at 1 percent.
Bank of Canada Governor Mark Carney said that as the recovery progresses, monetary policy can be expected to move away from exceptionally stimulative levels, while highlighting global risks. [nN1E76J0N0]
A Reuters survey taken after he spoke showed most of Canada's primary dealers expect the central bank to raise interest rates in September or October. [CA/POLL]
Inflation and retail sales data on Friday will provide the market with further direction.
"There's no data due today and lots of important stuff tomorrow so we've really just gone back to the old default position of trading on risk for the time being," added Cole.
Canadian government bond prices fell across the curve, tracking the move by U.S. Treasuries. The two-year bond CA2YT=RR was down 4 Canadian cents to yield 1.540 percent, while the 10-year bond CA10YT=RR dropped 23 Canadian cents to yield 2.981 percent (Reporting by Claire Sibonney, Editing by Chizu Nomiyama)