CANADA FX DEBT-C$ slips in US$ rally but strengthens on crosses

* C$ ends at C$0.9930 vs US$, or $1.0070

* C$ outperforms other commodity currencies

* Bond yields climb to 2012 highs

TORONTO, March 14 (Reuters) - The Canadian dollar dipped against the U.S. currency on Wednesday as the afterglow of the Federal Reserve’s optimistic view of the U.S. economy and news that most U.S. banks passed stress tests boosted the greenback.

The U.S. dollar hit an 11-month high against the yen and a one-month peak versus the euro a day after the Fed upgraded its economic outlook amid a stream of U.S. data signaling a sustainable recovery.

The Fed also said most of the largest U.S. banks passed their annual stress test in a report that underscored the recovery of the financial sector.

“This is really a U.S.-dollar bid session and has been for the past few days,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.

“Let’s attribute it to rising U.S. yields amid falling commodity prices, all set against the improving U.S. domestic landscape and validated by last week’s NFP (U.S. non-farm payrolls), yesterday’s FOMC and bank stress test results.”

The Canadian dollar ended the North American session at C$0.9930 versus the U.S. dollar, or $1.0070, down from Tuesday’s close at C$0.9892 versus the U.S. dollar, or $1.0109.

Analysts said the range for the U.S. dollar versus Canada’s remained intact around C$0.9850 to C$1.0050.

Canada’s role as the largest U.S. trading partner helped it outperform other commodity-linked currencies such as the Australian and New Zealand dollars.

“The Canadian dollar is materially outperforming both the Aussie and the Kiwi, which is what you typically see on days when you get this pure (U.S.) dollar strength,” said Adam Cole, global head of foreign exchange strategy for Royal Bank of Canada.

The Canadian dollar hit its strongest level against the Australian currency this year, breaking through the 200-day moving average to C$1.0327. Canada’s currency also firmed to more than a two-month peak against New Zealand’s dollar.

“If you look at Canada and Mexico, they’re both stronger amid this global noise that has been attracting bids into the U.S. dollar, and with both of those currencies higher, it lends credence to the ‘buy North America’ and ‘sell Europe and Asia’ trade,” added National’s Spitz.

He suggested the new normal in currency markets also reflects the deterioration of the typical risk-on/risk-off theme, as global equity markets remained supported amid safe-haven U.S. dollar strength.

“Typically we would have expected in the past that rising equity prices would have put a damper on the (U.S.) dollar with respect to carry trades but now we’re not seeing that,” Spitz added.

Canadian bond yields rose across the curve, tracking the trend in U.S. Treasuries as the Fed’s brighter view of the economy and recent stock market strength drove an exit from safe-haven government debt.

The two- and 10-year bond yields climbed to 2012 highs, though Canadian bonds outperformed their U.S. counterparts as prices in both markets fell.

The two-year bond was down 7 Canadian cents to yield 1.242 percent, while the 10-year bond dropped 75 Canadian cents to yield 2.154 percent.