* C$ hits highest level since Aug. 4
* Commodity backdrop triggers rally
* Bond prices flat across the curve (Recasts)
TORONTO, Sept 8 (Reuters) - Canada's dollarrose versus the U.S. currency on Tuesday, driven by a rally in commodities and equities, but it backed off a five-week high reached earlier as traders opted to pocket some of the sharp gain.
The overnight surge in the Canadian dollar, which reached a high of C$1.0674 to the U.S. dollar, or 93.69 U.S. cents, came alongside a number of other currencies that took advantage of a greater investor appetite for riskier assets.
"A lot of these currencies were making spectacular gains and I think the market just figured it was probably a good idea to take some profit on these positions," said David Watt, senior currency strategist at RBC Capital Markets. "So again, it's just the market taking a look at the situation and taking some money off the table."
By 10:55 a.m (1455 GMT), the Canadian unit was at C$1.0722 to the U.S. dollar, or 93.27 U.S. cents, up from C$1.0867 to the U.S. dollar, or 92.02 U.S. cents, at Friday's close.
The Bank of Canada did not offer a closing level for the Canadian dollar on Monday as North American financial markets were closed for Labor Day.
The bulk of the Canadian dollar's rise came alongside a rally in prices for oil and gold, both considered key Canadian exports whose prices often influence the currency.
Oil prices climbed above $70 a barrel on a growing risk appetite, while gold prices topped $1,000 an ounce for the first time in six month. [O/R] [GOL/].
A chunk of the currency's retreat from the overnight high followed data that showed Canadian building permits fell 11.4 percent in July, but the report was not blamed for the slight pullback as it is not considered key data. [ID:nN08293340]
"After the employment data on Friday, building permits isn't going to have any definitive impact on the Canadian dollar," said Watt.
Last week's jobs data showed the economy unexpectedly added 27,100 jobs in August even though the unemployment rate rose to an 11-1/2 year high of 8.7 percent. [ID:nN04153956]
BOND PRICES MIXED
Canadian bond prices were mixed across the curve but held near the break even level as gains in North American equity markets sapped demand for more secure government debt.
The S&P/TSX composite indexwas up 1 percent at 11,131.87, while the Dow Jones industrial average was up 0.58 percent at 9,495.76.
The two-year bondwas up 4 Canadian cents at C$99.49 to yield 1.262 percent, while the 10-year bond shed 21 Canadian cents to C$102.85 to yield 3.402 percent.
The 30-year bondslipped 20 Canadian cents to C$118.40 to yield 3.907 percent.
Canadian bonds underperformed their U.S. counterparts at the five- and 10-year portion of the curve. The Canadian 10-year bond yield was 5.1 basis points below its U.S. counterpart, compared with 6.8 basis points on Friday. (Editing by Jeffrey Hodgson)
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