(Repeats to broaden distribution)
* C$ finishes at C$1.0460 to the U.S. dollar
* Rebounds after Tues BoC warning on currency's strength (Updates to close, adds quotes)
TORONTO, Oct 21 (Reuters) - Canada's currency rose against the U.S. dollar on Wednesday, recovering slightly from a drop of almost two U.S. cents the day before, helped by gains in energy and commodity prices.
The currency shot up after touching its lowest level in nearly two weeks as the price of oil, a key Canadian export, jumped nearly 3 percent to its highest close in over a year, helped by bullish U.S. inventory data. [O/R]
At the same time, the Reuters-Jefferies CRB index .CRB, made up of a basket of 19 commodity futures, crossed 280 points on Wednesday for the first time in a year as a weaker U.S. dollar helped boost the asset class. [CRB/]
Those factors help trigger "some stop-losses on dollar/CAD on the downside and made today's move almost as one-sided as yesterday's," said Jean-Philippe Blais, vice-president foreign exchange products at BMO Capital Markets.
The Canadian unit finished at C$1.0460 to the U.S. dollar, or 95.60 U.S. cents, up from C$1.0508 to the U.S. dollar, or 95.17 U.S. cents, at Tuesday's close.
The Canadian dollar suffered its biggest intraday slide in more than four months on Tuesday after the Bank of Canada warned about the high-flying currency's impact on the economic recovery. The bank also laid to rest speculation it might follow Australia in hiking interest rates quickly. [ID:nN19231469]
The move higher on Wednesday reversed overnight weakness as overseas traders got a chance to react to the Bank of Canada statement.
The Canadian dollar had dropped to C$1.0584 to the U.S dollar, or 94.48 U.S. cents, its lowest level since Oct. 8.
Analysts said a healthy long-term outlook for commodity prices and the U.S. dollar's weakening trend against a basket of currencies meant the Canadian dollar was likely to resume its push towards parity with the greenback. [ID:nN21486491]
On Thursday, the Bank of Canada will release its Monetary Policy Report, which will include revised forecasts. This will be followed by a news conference with Governor Mark Carney.
"It's going to be interesting to see how they see interest rates coming in play in 2010 and if they're going to hold true to be on hold until the June meeting," Blais said.
"Some people were expecting (or) hoping for the Bank of Canada to say they might start hiking rates earlier than they stated in the past, which was not the case yesterday," he said.
Domestic bond prices, with no Canadian data to consider, were stuck lower across the curve alongside a weaker U.S. Treasury market. [US/]
There was also a modest selloff due in part to the unwinding of Tuesday's "extreme bullishness," said Eric Lascelles, chief economics and rates strategist at TD Securities.
"Clearly, the Bank of Canada was the dominant theme yesterday. My sense is that markets are looking a little bit further ahead," he said, noting the market will be eyeing domestic retail sales data and the central bank's Monetary Policy Report on Thursday.
The two-year bond CA2YT=RR, which rose sharply on Tuesday, fell 2.5 Canadian cents to C$99.465 to yield 1.509 percent, while the 10-year bond CA10YT=RR fell 20 Canadian cents to C$102.45 to yield 3.447 percent.
The Canadian market outperformed U.S. Treasury bonds. The Canadian 10-year Canadian yield was about 5 basis points above its U.S. counterpart, down from 8 basis points on Tuesday. (Reporting by Jennifer Kwan and Jeffrey Hodgson; editing by Rob Wilson)