CANADA FX DEBT-C$ hits two-month high as oil, equities climb

* Canadian dollar ends up at 96.02 U.S. cents

* Oil climbs above $81 a barrel

* Bonds largely flat, sell off at long end
(Updates to close, adds quote, details)

By Jennifer Kwan

TORONTO, Jan 4 (Reuters) - The Canadian dollar rose nearly
one U.S. cent against the greenback on Monday as the price of
crude oil rallied and global equity markets kicked off 2010 on
an upbeat note, increasing demand for riskier assets.

The unit rose to its highest level since last October,
peaking at 96.61 U.S. cents, alongside equity markets, which
got a boost after reassuring manufacturing data in the U.S. and
China lifted confidence in the global economic recovery. [.N]
[ID:nSGE60301H]

Data showed the U.S. manufacturing sector grew at its
fastest pace in nearly four years in December, its fifth
consecutive month of expansion, adding to hopes of economic
improvement in 2010. [ID:nN04237488]

"Equity markets are all green today so it's good old risk
on. People are trying to diversify from the U.S. dollar into
some sexier investments," said J.P. Blais, vice president of
foreign exchange products at BMO Capital Markets.

Oil, a key Canadian export, climbed above $81 a barrel on
Monday, the highest in nearly 15 months, boosted in part as
frigid U.S. weather boosted demand for heating fuel. [O/R]

The Canadian dollar finished at C$1.0414 to the U.S.
dollar, or 96.02 U.S. cents, up from a Dec. 31 finish at
C$1.0510 to the U.S. dollar, or 95.15 U.S. cents.

The currency's strength came after the greenback fell
broadly as gains in stock and commodity prices lured investors
to seek out more risk.

The U.S. dollar also dropped as traders locked in gains
ahead of key U.S. jobs data on Friday, which could set the tone
for the currency's near term direction. [FRX/]

"We're in the new year with probably fund managers sitting
on a whole bunch of cash and looking for new, exciting trade
ideas. I think the Canadian dollar is an attractive play right
now," said Blais.

The move extends the 2009 rally in which the Canadian
dollar closed up 15.9 percent versus the greenback, rebounding
from a more than 18 percent drop in 2008.

LONG-DATED BONDS LOWER

Canadian bond prices were largely flat at the short end,
tracking U.S. Treasuries, but slightly lower at the long end.

"Generally, we had a steepening action in the U.S. There
was firmer data in the U.S., equity markets are firmer and that
may have been some of the pressure at the long end," said Mark
Chandler, fixed income strategist at RBC Capital Markets.

The two-year government bond CA2YT=RR ticked up 5
Canadian cents at C$99.62 to yield 1.453 percent, while the
30-year bond CA30YT=RR dropped 45 Canadian cents lower to
C$114.65 to yield 4.104 percent.

Canadian government bonds mostly underperformed U.S.
issues, with the Canadian 10-year yield 22 basis points below
its U.S. counterpart, compared with 23 basis points on Dec.
31.
(Editing by Jeffrey Hodgson)