CANADA FX DEBT-C$ follows equity markets higher

* C$ rises to 96.95 U.S.

* Bonds prices firm across curve

*

By Claire Sibonney

TORONTO, July 28 (Reuters) - The Canadian dollar drifted
higher against its U.S. counterpart on Wednesday as a global
risk rally benefiting equities and growth-related currencies
returned, bolstered by solid corporate earnings and easing
fears about financial stability.

Global stocks rose for the fifth day running and the
greenback was lower against a basket of major currencies, while
S&P 500 futures were flat ahead of a busy day on the earnings
calendar.

"The Canadian dollar has rallied back," said Tom Nakamura,
fixed-income portfolio manager at AGF Investments.

"Equity markets were pretty firm overnight for the most
part and I think people are starting to get a bit more
comfortable with a less dire economic picture, so not so much
double dip as a more balanced global economy."

With no major Canadian data on tap, currency investors will
be watching U.S. durable goods orders for June as well as the
release of the Federal Reserve's Beige Book on regional
economic conditions.

"We're probably going to take our cues from stock markets
and just general improvement in sovereign European credit,"
added Nakamura.

"Sovereigns have done well over the past few weeks, so that
pressure is helping markets going forward."

Risk sentiment had been boosted on Tuesday as European
shares hit a five-week closing high. Two of Europe's top banks,
UBS (UBSN.VX)(UBS.N) and Deutsche Bank (DBKGn.DE)(DB.N), posted
results that reassured investors following last week's
regulatory stress tests. [ID:nLDE66Q0FS].

On the commodities front, oil slipped toward $77 per barrel
after an unexpected increase in U.S. crude stockpiles and a
drop in U.S. consumer confidence, while fresh signals of
economic growth in China sent copper to its highest peak since
mid-May, which could also tug on the the Canadian currency.
[O/R] [MET/L]

At 8:04 a.m. (1204 GMT), the Canadian currency CAD=D4 was
at C$1.0315 to the U.S. dollar, or 96.95 U.S. cents, up from
Tuesday's finish at C$1.0362 to the U.S. dollar, or 96.51 U.S.
cents.

Overnight, the Canadian dollar backed off, tracking the
Australian dollar lower after data showed Australian consumer
prices rose much less than expected last quarter and core
inflation slowed to its lowest in more than three years, which
tempered expectations for rate increases in the near term
[ID:nSGE66P04R]

"The initial reaction was to pare back on those types of
commodity-related carry trades," said Nakamura.

Canadian bond prices rose across the curve, as investors
scaled back on assets of riskier credit markets.

"There's going to be a little of an up-trade initially
because I think there are people profit-taking on their risk
positions, whether it's corporate or other sovereigns and going
back into safe havens, since Treasury markets have been
slightly more bid this morning," said Nakamura.

The two-year bond CA2YT=RR was up 3 Canadian cents to
yield 1.625 percent, while the 10-year bond CA10YT=RR gained
15 Canadian cents to yield 3.254 percent.

Investors will also take their cue from demand of a U.S.
Treasury $37 billion auction of five-year bonds.
(Editing by Theodore d'Afflisio)