* C$ at C$1.0178 vs US$, or 98.22 U.S. cents
* North American stocks, oil, recovers
* U.S. producer prices boost sentiment
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.
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
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,"
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
rose 2 Canadian
cents to yield 0.980 percent, while the 10-year bond
was up 21 Canadian cents to yield 2.266 percent.
(Editing by Chizu Nomiyama and Peter Galloway)