* C$ pares gains to 99.98 U.S. cents
* Bond prices slide
* Canada markets reopen to light trade after break
TORONTO, Dec 29 (Reuters) - The Canadian dollar rose above parity with the U.S. dollar briefly on Wednesday in illiquid trade.
The Canadian dollar hit a high of 99.75 Canadian cents to the U.S. dollar, matching the level it hit on Tuesday when Canadian markets were shut for an extended holiday break.
On Tuesday, the currency traded in a wide range of C$1.0072 to the U.S. dollar, or 99.29 U.S. cents, to 99.75 Canadian cents to the greenback, or $1.0025 -- rising to its strongest since late April.
At 8:55 a.m. (1355 GMT), the Canadian dollar had pared gains, sitting at C$1.0002 to the U.S. dollar, or 99.98 U.S. cents, up from Friday's close at C$1.0064 to the U.S. dollar, or 99.36 U.S. cents. Canadian markets were shut on Monday and Tuesday.
"I think it's just a flow that probably would have gone through over the past couple of days that is now all going through the market, and you back that up with some illiquidity and we're getting a fairly substantial bounce," said David Watt, senior currency strategist at RBC Capital Markets.
The Canadian dollar has reached a one-for-one footing with the U.S. currency a handful of times this year but without any conviction.
Monthly foreign exchange surveys by Reuters have consistently found forecasters expect the Canadian dollar to hover near par with the greenback next year, partly as a result of sturdy commodity prices. [CAD/POLL]
Expected interest rate increases from the Bank of Canada next year will also support party because a widening interest rate spread over U.S. interest rates is more attractive to investors.
Canadian bond prices slumped in light trade, playing catch-up to losses suffered by U.S. Treasuries earlier in the week.
Prices were additionally weighed by firmer risk sentiment as North American stock markets looked set to carry on a rally.
The two-year bond CA2YT=RR sank 13 Canadian cents to yield 1.761 percent, while the 10-year bond CA10YT=RR lost 61 Canadian cents to yield 3.245 percent.
(Reporting by Ka Yan Ng; Editing by Padraic Cassidy)