* C$ closes at C$0.9787, or $1.0218
* Reaches highest level since March 2008
* Rebound in equities symptomatic of renewed risk appetite
* Recent commodity price spike provided supported
* Bond prices mostly firmer (Adds details, analysts' comments)
By Solarina Ho
TORONTO, Feb 25 (Reuters) - The Canadian dollar closed near three-year highs against its U.S. counterpart on Friday as risk appetite returned on the back of stronger equities and recent strength in oil prices.
The Canadian dollar CAD=D4 closed at C$0.9787 to the U.S. dollar, or $1.0218, up from Thursday's North American finish of C$0.9832 to the U.S. dollar, or $1.0171.
During the day it rose as high as C$0.9780, or $1.0225, its loftiest level since March 2008, when it closed at C$0.9740.
The gains came as Toronto's main stock index jumped back above 14,000 in a broad relief rally led by the mining-heavy materials sector and heavyweight banks. [.TO]
The market relief came as fears of economic disruption due to a surge in oil prices spurred by the Libyan crisis were soothed by news that Saudi Arabia has increased production. Canada is a major oil exporter and although crude prices were down from Thursday's 2-1/2 year highs highs, they were still strong on Friday and allowed the currency to break the C$0.98 barrier.
Oil prices were firmly higher on the week. [O/R]
"It was risk appetite today for sure. Equity markets were up across the board -- that was the main driver," said Kam Bath, a fixed income strategist at RBC Capital Markets.
"(Oil) for sure has been underpinning it, and letting CAD hold on to its gains."
The currency also found some strength after Canada reported its nine-month budget deficit shrank from a year earlier. [ID:nOLAPDE77U]
Canada reports GDP figures on Monday and the Bank of Canada will be announcing its next rate decision on Tuesday.
"Canada has benefited a little bit from ... its relative safe-haven status, considering all the things going on in the world -- the unrest in the Middle East and Northern Africa," said Steve Butler, director of foreign exchange trading at Scotia Capital.
Some analysts said the Canadian dollar could continue to test highs last seen before the financial crisis, with few technical barriers in the way of further gains. [ID:nN17237763]
But Jacqui Douglas, currency strategist at TD Securities, said the currency's rise may be overdone.
"The move lower in USD/CAD really has not had too much momentum behind it. It seems like it's been a pretty slow grind lower (for the U.S. dollar)," she said.
"Looking at all the risks out there with the GDP, Bank of Canada, and what's happening globally, I think the risk is a bigger move to the upside (for the U.S. dollar) than a move to the downside."
Canadian bond prices were mostly higher, with the two-year bond prices CA2YT=RR up 3 Canadian cents to yield 1.783 percent, while the 10-year bond CA10YT=RR added 22 Canadian cents to yield 3.293 percent. (Editing by Peter Galloway)