Aug. 12 (Bloomberg) -- Canada’s dollar strengthened the most in almost a month as the nation’s trade deficit narrowed more than forecast and stocks and crude oil rose, making growth- linked currencies more appealing.

“Equities and crude oil are bringing the Canadian dollar along with them,” said Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Canada Co. The currency “should be a main beneficiary of any economic stability,” he said.

The Canadian currency, nicknamed the loonie, appreciated 1.1 percent to C$1.0893 per U.S. dollar at 5 p.m. in Toronto, from C$1.1017 yesterday, when it capped a four-day slide. It gained as much as 1.5 percent today, the most on an intraday basis since July 15. It reached a 10-month high of C$1.0633 on Aug. 4. One Canadian dollar buys 91.80 U.S. cents.

The loonie briefly pared gains after U.S. Federal Reserve policy makers said they will slow the pace of their $300 billion program to buy Treasuries and now expect it to end in October instead of September. They kept the benchmark interest rate at a range of zero to 0.25 percent and said the economy appears to be “leveling out.”

“The Fed sounded a bit more upbeat on the economy,” said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto, a unit of Canada’s fourth-largest lender. “All they really did was stretch out the purchase of Treasuries. We’re in a world where good economic news is starting to help the U.S. dollar. We could see some further underlying weakness in the Canadian dollar.”

Trade Gap Narrows

Canada’s June trade deficit narrowed to C$55 million ($50 million), from a revised C$1.11 billion in May, a record, after U.S. demand for crude boosted exports, Statistics Canada said in Ottawa. Economists expected a C$700 million deficit, according to the median of 19 responses in a Bloomberg News survey.

Some “macro-economic variables suggest that the Canadian dollar may have been a little under-valued through the end of June,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., referring to the trade data. The firm is a unit of Canada’s second-largest bank.

The Standard & Poor’s 500 Index, the benchmark for U.S. stocks, climbed 1.2 percent.

Crude oil for September delivery advanced 1.3 percent to $70.36 a barrel on the New York Mercantile Exchange. Raw materials account for more than half of Canada’s export revenue, and crude is the nation’s largest export.

‘Significant Deviation’

Finance Minister Jim Flaherty said today that global economic recovery was the top priority of policy makers around the world rather than currency issues. Flaherty made the remarks to reporters in Beijing in response to a question about the level of the Chinese yuan.

The Canadian currency has depreciated 1.5 percent since Flaherty on Aug. 4 expressed concern about its rise and said that “steps” could be taken to damp the appreciation. He reiterated today he’s “always” concerned about rapid fluctuations in the currency.

The Bank of Canada’s forecast that the nation’s economy will expand this quarter assumes the Canadian dollar will average 87 U.S. cents through 2011, or about C$1.15 per U.S. dollar.

“A significant deviation from this level would have a negative impact on their forecast variables, and hence cause policy adjustments in response to this,” said George Davis, chief technical analyst for fixed-income and currency strategy in Toronto at RBC Capital Markets, a unit of the nation’s biggest bank. “A strong Canadian dollar will hamper the recovery.”

Longer-term Canadian government bonds fell. The 10-year note’s yield increased two basis points, or 0.02 percentage point, to 3.51 percent. The price of the 3.75 percent security maturing in June 2019 decreased 14 cents to C$101.95.

The Bank of Canada plans to auction tomorrow C$3.2 billion ($2.9 billion) of 3.75 percent securities maturing in June 2019.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: August 12, 2009 17:11 EDT