* C$ retreats from 3-1/2 yr high, up on day at $1.0472
* Bonds slide in response to flows toward riskier assets
By Ka Yan Ng
TORONTO, April 20 (Reuters) - The Canadian dollar backed off a bit on Wednesday after hitting its highest level against the U.S. dollar since November 2007, but support from oil- and equity-market rallies helped it hold moderate gains.
Boosted by renewed demand for carry trades, higher commodity prices and above-forecast inflation in Canada, the Canadian dollar CAD=D4 had risen as high as C$0.9498 to the U.S. dollar, or $1.0529, early in the day.
"It rallied quite strongly into the early morning and then hit a wall," said David Tulk, chief Canada macro strategist at TD Securities.
"I think it's a sense of fatigue and probably the order book stacking up in such a way that a further sell-off in dollar/Canada just wasn't in the cards."
At 1:55 p.m. (1755 GMT), the Canadian dollar was at C$0.9549 to the U.S. dollar, or $1.0472, up from Tuesday's North American finish of C$0.9565 to the U.S. dollar, or $1.0455.
The Canadian dollar's gains on Wednesday paled against those made by sister commodity-linked currency, the Australian dollar, which hit a fresh post-float high of $1.0692 in the chase for yield. [FRX/] AUD=D4
Adam Cole, global head of FX strategy at RBC Capital Markets, said there was little left in the way of U.S. dollar support that would impede a return of the Canadian dollar to its modern-day high of $1.10.
The Canadian dollar's move built on gains made in the previous session after data showed Canada's annual inflation rate last month jumped to its highest level since September 2008, putting more pressure on the Bank of Canada to raise interest rates. [ID:nN19274146]
Following the report, a Reuters poll showed a growing number of primary dealers believe the central bank will resume raising interest rates in July. [CA/POLL]
Canadian bond prices were lower across the curve as the world stock rally drew investors away from the relative safety of government debt.
"You're looking at a very heavy risk-on kind of day. Canada appears to be in the ballpark of the U.S. There's no major outperformance or underperformance," TD's Tulk said.
Canada's C$3.5 billion sale of five-year bonds due in September 2016 met with strong demand, producing a bid-to-cover ratio of 2.327. The ratio, a measure of investor demand, was the highest for a five-year auction since November.
The two-year bond CA2YT=RR was down 4 Canadian cents to yield 1.793 percent, while the 10-year bond CA10YT=RR lost 30 Canadian cents to yield 3.302 percent. (Additional reporting by Claire Sibonney; editing by Peter Galloway)