* Canadian dollar stronger as global stocks surge
* C$0.9771 to U.S. dollar, or $1.0234
* Bonds prices drift lower in risk-on bid
By Andrea Hopkins
TORONTO, Aug 29 (Reuters) - The Canadian dollar rose on Monday, following North American stocks higher, as a Greek bank merger and a rebound in U.S. consumer spending boosted investor appetite for riskier assets.
With London markets closed for a holiday on Monday, volume was lighter than usual. But global equity markets and oil rallied as news of a merger between two major banks in Greece gave investors a rare bit of encouraging news out of Europe and an unexpected surge in U.S. consumer spending suggested the economy was not falling back into recession. [ID:N1E77S1AX]
"We've seen U.S. equities up between two and three percent today, so the positive correlation between the Canadian dollar and equities continues to dominate proceedings here," said Shaun Osborne, chief currency strategist at TD Securities.
"The focus is really on risk assets and the still-simmering expectation that we could see more action from the Fed at some point in the not-too-distant future," he added.
The Canadian dollar CAD=D4 hit a session high early in the day of C$0.9741 to the U.S. dollar, or $1.0265, its strongest level since Aug. 4, before easing back to end the day at C$0.9771 to the U.S. dollar, or $1.0234. That was up from Friday's North American close of C$0.9830 to the U.S. dollar, or $1.0173.
U.S. stocks soared more than 2 percent in a broad rally, with the Dow Jones industrial average .DJI up 2.25 percent, and the Nasdaq Composite Index .IXIC up 3.32 percent. [.N]
Toronto's main stock index advanced 1.44 percent, with the energy and financial sectors leading the rally. [.TO]
Oil also climbed on the rise in consumer spending and relief that damage from Hurricane Irene was less severe than expected. [O/R]
Equity markets have rebounded since U.S. Federal Reserve Chairman Ben Bernanke said on Friday the central bank's policy panel would meet for two days next month instead of one to discuss additional monetary stimulus, offering some hope to the market of a move then. [nN1E77R0GB]
Osborne said the Canadian currency would likely trade in a range between C$0.97 and C$0.99 -- not testing recent highs or lows -- as investors digest a slew of data out of the United States this week, including August payrolls, due on Friday, and await the September meeting of the FOMC.
"We've had this hint from Mr. Bernanke that there's going to be a discussion of options, and I think investors are going to sit tight and probably won't push asset markets too quickly too far in one way or the other," Osborne said.
David Bradley, director of foreign exchange trading at Scotia Capital, said end-of-month equity rebalancing in the next couple of sessions may also be positive for the Canadian dollar against the euro, as European stocks have been hit hard recently.
Bond prices drifted lower in the risk-on environment.
The two-year bond CA2YT=RR was down 11.5 Canadian cents to yield 1.067 percent, while the 10-year bond CA10YT=RR shed 60 Canadian cents to yield 2.466 percent. (Editing by Jeffrey Hodgson)