June 17 (Bloomberg) -- The Canadian dollar gained for the first time in four days as crude oil rose and U.S. stocks pared losses, prompting investors to swap the safety of the U.S. dollar for riskier assets such as commodity-linked currencies.

Canada’s dollar, known as the loonie, earlier touched the lowest level in almost a month as crude and stocks slid. The government sold C$3.5 billion ($3.1 billion) in two-year notes. The U.S. dollar fell against 12 of the 16 most-active currencies tracked by Bloomberg.

“It is obvious that the market is desperately looking for direction,” Matthew Strauss, a currency strategist at RBC Capital Markets in Toronto, a unit of Canada’s biggest bank, wrote in a note to clients. “Foreign-exchange changes remain modest at best and the top Group of 10 performance spot is frequently changing hands between cyclical and commodity currencies and traditional risk-averse benefactors.”

Canada’s currency appreciated 0.3 percent to C$1.1318 per U.S. dollar at 5 p.m. in Toronto, from C$1.1355 yesterday. It touched C$1.1449, the weakest level since May 21, when it reached C$1.1482. One Canadian dollar buys 88.36 U.S. cents.

The nation’s opposition Liberal Party said it won’t attempt to defeat Prime Minister Stephen Harper’s government this week. The Liberals and the governing Conservatives agreed to set up a working group on easing eligibility requirements for jobless insurance, according to a statement from the Liberals.

The loonie reversed its earlier decline after “both equities and oil returned to day highs, and because of the Liberal announcement,” said Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Canada Co.

Crude Up

Crude oil for July delivery rose 0.6 percent to $70.88 a barrel after earlier tumbling as much as 2.1 percent. The Reuters/Jefferies CRB Index of 19 raw materials advanced for the first time in four days. Raw materials including oil account for more than half of Canada’s export revenue.

The Standard & Poor’s 500 Index rose as much as 0.7 percent before closing down 0.1 percent. It fell 0.9 percent earlier.

The stock measure closed at 910.71, above its 200-day moving average of 906.05. The index has “broken and remained above the 200-day moving average since the beginning of June -- a clear bullish sign,” though its inability to make significant gains since then is “worrying for equity bulls and U.S. dollar bears,” Strauss wrote.

Bond Sale

Today’s two-year bond auction, the fifth this year of the maturity, was 2.24 times covered, meaning the government received bids for more than double the amount of debt offered, according to Bloomberg calculations from Bank of Canada data. It drew bids of C$7.8 billion for the 1 percent notes maturing in September 2011 to yield an average of 1.52 percent, according to a statement on the central bank’s Web site.

The yield on the benchmark two-year bond fell eight basis points, or 0.08 percentage point, to 1.29 percent. It was the fifth consecutive decline and the biggest decrease since April 21. The price of the 1.25 percent security due in June 2011 rose 15 cents to C$99.93.

Canada raised its budget deficit projection for this year by 49 percent to C$50.2 billion earlier this month because of a bailout of North American automakers and as a shrinking economy forces the government to boost spending on unemployed workers.

The government initially projected a deficit of C$33.7 billion. It said in a progress report on its January budget it will run a deficit of C$3.9 billion for the 2008 fiscal year, from an initially projected C$1.1 billion.

Carney Statement

Canada’s index of leading economic indicators fell 0.1 percent in May, less than the 0.6 percent decline forecast in a Bloomberg survey, a Statistics Canada report today showed. Declines in the nation’s manufacturing and retail industries were mostly offset by gains in housing and stocks.

The loonie dropped 2.6 percent since June 11, when Bank of Canada Governor Mark Carney reiterated a statement that its “rapid rise” may threaten the economy if it persists. The currency gained the most in May in at least 59 years as investors ventured into riskier assets amid optimism the world economy would recover more quickly than expected.

Carney is scheduled to speak tomorrow in Regina, Saskatchewan.

The Canadian currency will strengthen to C$1.10 by the second quarter of 2010, according to the median estimate of 40 economists and analysts in a Bloomberg survey.

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net

Last Updated: June 17, 2009 17:10 EDT