* C$ climbs as high as C$1.1019 to the U.S. dollar
* Commodity rally, risk appetite drive gain
* Bond prices lower across curve (Adds details, analyst comment)
By Frank Pingue
TORONTO, July 20 (Reuters) - The Canadian dollar shot to its highest level in just over five weeks on Monday, driven by a rally in commodity prices and increased optimism about the state of the global economic recovery.
Canada's currency rallied as high as C$1.1019 to the U.S. dollar, or 90.75 U.S. cents, which marked its strongest level since June 12. The move came on the heels of its 4.4 percent rally last week.
"The markets have been feeling a lot better about things, whether it's the earnings reports that we saw last week or just the fact that people are starting to feel that things are starting to turn the corner," said Steve Butler, director of foreign exchange trading at Scotia Capital. "The world just looks like an awfully safe place once again this morning."
By 9:55 a.m. (1355 GMT), the Canadian unit eased slightly to C$1.1066 to the U.S. dollar, or 90.37 U.S. cents, which was still up from Friday's close of C$1.1161 to the U.S. dollar, or 89.60 U.S. cents.
Higher prices for oil and gold, both key Canadian exports, helped lure traders into the Canadian dollar, while demand for riskier assets also lent the currency a boost.
The currency's rise came ahead of the Bank of Canada's interest rate announcement on Tuesday, when it is expected to stick to its conditional pledge and keep rates at its current near-zero level. [ID:nN17484031]
Plenty of eyes will likely be on the bank's accompanying statement to see if it offers an updated view on the Canadian dollar. In its June statement, the bank said a strong Canadian dollar could offset positive factors like improved financial conditions and commodity prices. [ID:nN0479627]
"(The Bank of Canada) mentioned the currency last time and so you have to think they will say something about it again this time," said Butler. "But it might just fall on deaf ears because unless they do something about it, talk is cheap."
BONDS STUCK LOWER
Domestic bond prices were down across the curve as news that retail and small business lender CIT Group CIT.N may have reached a deal that could allow it to avoid bankruptcy cut demand for more secure government debt. [nN19323064]
The rally in global equities overnight was followed by the higher open in North American equities as the CIT news removed some uncertainty for the financial sector, which is still recovering from its deep crisis.
The S&P/TSX composite index .GSPTSE rose 1 percent at the open and went on to reach its highest level since June 15.
The fall in bond prices even came after Canadian wholesale trade fell in May for the eighth consecutive month to the lowest since December 2005. [ID:nN2016541]
A separate report showed foreigners scooped up a record C$19.38 billion worth of Canadian bonds in May. [nOTT001662]
The two-year Canada bond was down 4 Canadian cents at C$100.03 to yield 1.233 percent, while the 10-year bond slipped 18 Canadian cents to C$101.94 to yield 3.515 percent.
The 30-year bond was down 25 Canadian cents at C$116.20 to yield 4.027 percent. In the United States, the 30-year Treasury yielded 4.546 percent. (Editing by Jeffrey Hodgson)