July 18 (Bloomberg) -- Canada's dollar rose the most in two weeks as commodities including crude oil and gold increased on concern the Middle East conflict may escalate, boosting the currency's appeal.

Crude oil and gold gained after Israel launched an attack near the Lebanese capital of Beirut, raising the chance that the conflict would spread throughout the region that provides about one-third of the world's oil. Commodities comprise 54 percent of Canada's exports and 12 percent of its C$1.09 trillion economy, the world's eighth largest.

``If oil prices continue to pick up, then it'll be marginally positive for the Canadian dollar,'' said Monica Fan, head of global currency strategy at RBC Capital Markets Ltd. in London. ``But the elevated oil prices can hurt the global growth, particularly the U.S. growth, which will more than offset any gains from the higher oil exports.''

Canada's dollar increased 0.4 percent to 88.34 U.S. cents at 9:35 a.m. in Toronto from 87.97 U.S. cents yesterday. One U.S. dollar buys C$1.1320. It increased 0.5 percent on July 4.

The Canadian dollar reached 91.44 U.S. cents on May 31, the highest since 91.47 U.S. cents on Jan. 4, 1978.

Crude oil for August delivery rose as much as $1.07 to $76.37 a barrel on the New York Mercantile Exchange. The contract reached a record $78.40 on July 14.

Canada's Dollar and Oil

The Canadian dollar and crude oil have moved in the same direction 67 percent of the time during the past year, according to data compiled by Bloomberg News. Canada's oil sands in Alberta contain the largest crude deposits outside the Middle East.

Oil has risen about 25 percent this year, partly on concern that supplies from Iran would be disrupted by a dispute over its nuclear research. Iran is the world's fourth-largest crude producer.

Gold for immediate delivery gained $9.38, or 1.5 percent, to $652.40 an ounce.

``A lot of things which Canada is producing, such as copper and nickel, are doing extremely well,'' said Warren Jestin, chief economist at the Bank of Nova Scotia in Toronto. ``That factor is providing support to the Canadian dollar at the 88 U.S. cents level despite the great uncertainty and nervousness in the different asset markets.''

Copper and Nickel

Copper also rose as the economy of China, the world's largest consumer of the metal, grew 11.3 percent in the second quarter, the fastest pace in more than a decade.

Copper for delivery in three months gained $170, or 2.2 percent, to $7,910 a metric ton. Copper has increased 80 percent this year and climbed to a record $8,800 a ton on May 11.

Nickel added $50, or 0.2 percent, to $25,800 a ton. The metal has risen 91 percent this year, climbing to $26,900 a ton yesterday, the highest since at least 1987.

Zinc added $40 to $3,315 a ton.

Canada is the world's No. 2 producer of nickel and zinc.

The yield on Canada's 10-year government bond rose 3 basis points, or 0.03 percentage point, to 4.47 percent. The price of the 4.5 percent bond due June 2015 declined 21 cents to C$100.24.

The yield on Canada's two-year bond rose 2 basis points to 4.25 percent. The yield reached 4.47 percent on June 29, the highest since 4.545 percent on April 2, 2002. The price of the 3.75 percent bond due June 2008 declined 4 cents to C$99.12. Yields move inversely to bond prices.

To contact the reporter on this story: Haris Anwar in New York at hanwar2@bloomberg.net.

Last Updated: July 18, 2006 09:37 EDT