* Bank of Canada warns on C$ strength
* Stumble in oil prices also weighs on C$
* U.S. consumer confidence rises in August (Recasts)
By Frank Pingue
TORONTO, Aug 25 (Reuters) - Canada's dollar unraveled its early gain and was lower versus the greenback on Tuesday after a Bank of Canada official warned persistent Canadian dollar strength could hurt the country's economic recover.
A 3-percent fall in the price of oil after earlier hitting a 10-month peak also weighed on the Canadian dollar. Oil prices often influence the Canadian currency given the nature of the country's exports. [ID:nSP347579]
"It does seem like during this last push we ran into some stops here in dollar/Canada, and with oil being down on the day that's what put the Canadian dollar under pressure," said J.P. Blais, vice president, foreign exchange products, at BMO Capital Markets.
The turnaround in the Canadian dollar started early in the session when data showed larger-than-expected improvements in U.S. housing prices and consumer confidence, which lent new weight to signs the economy is emerging from the longest and deepest recession since the 1930s. [ID:nN25205751]
The domestic currency extended its slide shortly after Bank of Canada Deputy Governor Timothy Lane sounded a warning about possible persistent Canadian dollar strength. [ID:nN25220089]
After Lane's speech, the Canadian dollar fell as low as C$1.0870 to the U.S. dollar, or 91.99 U.S. cents.
"I suppose the market is looking at two things. One is no suggestion that rate hikes are forthcoming sooner than previously thought, and two, the trepidation the Bank of Canada is expressing over Canadian dollar strength," said Eric Lascelles, chief economics and rates strategist at TD Securities.
"I suppose the combination of the two is enough to take a little bit of wind out of the currency's sails."
By 2:20 p.m. (1820 GMT), the Canadian currency recovered a touch to C$1.0842 to the U.S. dollar, or 92.23 U.S. cents, down from C$1.0770 to the U.S. dollar, or 92.85 U.S. cents, at Monday's close.
Earlier, the Canadian dollar had rallied to C$1.0718 to the U.S. dollar, or 93.30 U.S. cents, its highest level since Aug. 6, as North American equities were poised for a higher open.
The rally was short-lived as the upbeat U.S. data lent an immediate boost to the greenback, a departure from earlier this year when positive news would boost the Canadian dollar by convincing investors to sell safe-haven currencies like the U.S. dollar.
In his speech to economists, the Bank of Canada's Lane said Canada's recession had most likely ended, with growth expected to resume in the third quarter. But he also said a persistently strong Canadian dollar would reduce real growth and delay the return of inflation to target.
BOND PRICES EDGE HIGHER
Canadian bond prices were slightly higher across the curve, tracking a move in the bigger U.S. Treasury market, as decent demand there for an auction of two-year notes offset the impact of the upbeat economic data.
Bond prices had all been lower across the curve earlier in the session when the U.S. data sapped demand for more secure assets like government debt and prompted a move into riskier assets like stocks.
The two-year Canadian bond CA2YT=RR was up 4 Canadian cents at C$99.41 to yield 1.298 percent, while the 10-year bond CA10YT=RR rose 28 Canadian cents to C$102.88 to yield 3.400 percent.
The 30-year bond CA30YT=RR was up 25 Canadian cents at C$118.55 to yield 3.900 percent. (Reporting by Frank Pingue, Editing by Jeffrey Hodgson)