* C$ rallies to 83.40 U.S. cents
* Oil and equity backdrop fuel gain
* Bond prices dip after Fed comments (Recasts)
TORONTO, April 29 (Reuters) - The Canadian dollar charged to its highest level in nearly two weeks on Wednesday as more upbeat investors snapped up riskier assets while a rise in the price of oil, a key Canadian export, also added support.
The combination of the oil backdrop, higher equity markets and upbeat corporate news from North America and overseas all combined to boost the Canadian currency as high as C$1.1990 to the U.S. dollar, or 83.40 U.S. cents, its highest level since April 16.
And while the currency ended below its session high, it did snap a two-day slide from early this week when the swine flu outbreak raised concerns about the possible economic impact.
"We seem to now be shrugging off all this worry about the flu and risk has really come back to the market," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"We saw a couple days where there was a lot of concern but now, slowly but surely, things have been really back into risk mode and that's really benefiting Canada and other commodity currencies."
The Canadian dollar closed at C$1.2030 to the U.S. dollar, or 83.13 U.S. cents, up from C$1.2205 to the U.S. dollar, or 81.93 U.S. cents, at Tuesday's close.
Sentiment began to improve overnight when global stocks rallied on upbeat corporate news while the commodity-linked currencies of Australia and New Zealand made sharp gains.
That carried on through the North American session where equities also rallied, helped in part by comments from the U.S. Federal Reserve, which said the pace of economic deterioration in the United States appeared to be slowing. [ID:nN29410693]
Butler said the Canadian dollar may have more momentum but cautioned that gains beyond Wednesday's high of C$1.1990 will be hard to come by.
"If we can get convincingly below I think that maybe sends it down towards C$1.1850 again, but I think the market is going to play it really cautious just because people are concerned with the lack of follow through."
The Canadian dollar is 8.6 percent above the five-year low it hit in early March. It also found some resistance around the C$1.1985 level just two weeks ago.
Oil prices climbed back towards $51 per barrel as optimism that the U.S. recession is easing raised expectations of a rebound in demand from the world's biggest consumer. [ID:nSP459932]
BONDS PRICES LOWER
Canadian bond prices unraveled early gains to end flat to lower across the curve as the Fed comments left investors with little interest in more secure assets like government debt.
The rally in North American equities, a 0.7 percent gain in Toronto and a 2 percent rise in New York, also did little to help the cause for bond prices.
"We're just tracking the U.S. market. We're outperforming but we just tend to take direction from the U.S. market," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment. "You can also add that equity markets remain very firm so it might be a bit of an asset allocation shift there."
The drop in bond prices followed a skid in the previous session when a U.S. consumer confidence report also dented the safe-haven appeal of government bonds. [ID:nN28334543]
The two-year Canada bond was unchanged at C$100.55 to yield 0.983 percent, while the 10-year dropped 23 Canadian cents to C$105.72 to yield 3.086 percent.
The 30-year bond fell 53 Canadian cents to C$120.17 to yield 3.822 percent. In the United States, the 30-year Treasury yielded 4.015 percent.
Canadian bonds outperformed U.S. Treasuries across much of the curve. The Canadian 30-year bond yield was about 19 basis points below its U.S. counterpart, compared with about 16 basis points on Tuesday. (Editing by Jeffrey Hodgson)
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