* C$ at C$1.0178 vs US$, or 98.22 U.S. cents
* North American stocks, oil, recovers
* U.S. producer prices boost sentiment
* Bond prices higher
By Andrea Hopkins
TORONTO, Oct 18 (Reuters) - The Canadian dollar was higher against its U.S. counterpart at midday on Tuesday as investors shrugged off concerns about Chinese growth and the euro zone debt crisis, sending North American stocks higher.
After a weaker opening by commodity-linked currencies and a big drop in equities, markets reversed course late on Tuesday morning with U.S. stocks recovering as better-than-expected bank earnings overshadowed worries about the crisis in Europe. [.N]
The Canadian dollar outperformed major rivals, boosted by rising oil prices. U.S. crude oil futures extended gains to post a session high above $87 a barrel, supported by Wall Street's rise and earlier data showing better-than-expected U.S. producer prices. [O/R]
"Everything is looking quite rosy despite some jitters overnight about weaker GDP in China and doubts about this European package," said Blake Jespersen, director, foreign exchange sales at BMO Capital Markets.
"Oil reaching almost $88 a barrel is a good sign ... and I think the move yesterday in the Canadian dollar was a little overdone and with markets stronger this morning, the view was that the Canadian dollar had a ways to appreciate."
The Canadian dollar lost more than two cents on Monday after a big rally last week.
At 12:22 p.m. (1622 GMT), the Canadian dollar CAD=D3 was at C$1.0178 to the U.S. dollar, or 98.22 U.S. cents, above Monday's North American session close of C$1.0221 against the U.S. dollar, or 97.84 U.S. cents.
Stronger-than-expected U.S. data helped fuel the market reversal. U.S. producer prices rose at their fastest pace in five months in September as the cost of gasoline surged, but a small gain in core prices suggested the increased price pressure was unlikely to be sustained. [ID:nN1E79H0CB]
With euro-zone woes as a backdrop all this week ahead of the Oct. 23 summit of European leaders, the Canadian dollar could be under pressure in the next few sessions.
"I think heading into the end of the week investors are going to turn cautious and likely take some risk off table, so I would expect this nice little run by the Canadian dollar to unfortunately come to a bit of an end later this week," Jespersen said.
He said BMO was seeing good buying interest in the Canadian dollar at mid-C$1.02 to the U.S. dollar, while C$1.0080 is probably a "good level to take profit on for now".
Canadian bond prices gave up some early gains but remained higher across the curve despite the recovery in equities. The two-year Canadian government bond CA2YT=RR rose 2 Canadian cents to yield 0.980 percent, while the 10-year bond CA10YT=RR was up 21 Canadian cents to yield 2.266 percent. (Editing by Chizu Nomiyama and Peter Galloway)