CANADA FX DEBT-C$ rebounds as oil, equities climb

* C$ rebounds at 80.87 U.S. cents

* Bank of Canada cuts rate 25 basis points to 0.25 pct

* Bond prices mostly higher across the curve (Updates to midday, adds quote)

TORONTO, April 21 (Reuters) - A turnaround in equities and a rebound in the price of oil helped the Canadian dollar trim earlier losses against the greenback on Tuesday after the Bank of Canada surprised the market by cutting its benchmark interest rate to 0.25 percent.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE shot up 1 percent at midday after starting the day in negative territory. U.S. stocks were also higher.

Oil pared early losses to trade above $46 a barrel. [ID:nSP465475]

“The oil prices have come off their bottom and stock markets have rebounded,” said David Watt, senior currency strategist at RBC Capital Markets.

“People took yesterday’s move as a chance to snap up some bargains again.”

North American equity markets slid on Monday in tandem with oil prices and amid fresh concerns over the health of the U.S. banking sector. [ID:nSP465475] Recently, the currency has tracked movements in equity markets as part of a broader theme of risk appetite or aversion.

At 12:20 p.m. (1620 GMT), the Canadian dollar was at C$1.2365 to the U.S. dollar, or 80.87 U.S. cents, up from C$1.2385 to the U.S. dollar, or 80.74 U.S. cents, at Monday’s close.

After the central bank’s announcement, the currency dropped to C$1.2507 to the U.S. dollar, or 79.96 U.S. cents, its lowest level since April 2.

The Bank of Canada cut its key overnight rate to a historic low of 0.25 percent from 0.50 percent and predicted a deeper recession than it had previously forecast [ID:nN21297335].

It also took the unusual step of providing guidance on rates, saying it will keep its key overnight rate at 0.25 percent until mid-2010 in an aggressive bid to boost the economy.

The market will pay close attention to the central bank’s Monetary Policy Report, due for release on Thursday, when it outlines a framework for unconventional measures, such as buying government or corporate bonds, operations known as quantitative easing.

Canadian bond prices were higher at the short end and flat to lower at the long end, pressured by some concerns the Bank of Canada’s aggressive easing policy could fuel inflation over the long term. (Reporting by Jennifer Kwan; editing by Peter Galloway)