Nov. 4 (Bloomberg) -- Canada's currency rose to the highest in three weeks as commodities including oil gained and global stocks advanced, signaling an increase in risk appetite.

The Canadian dollar, which strengthened for a second day, has jumped 10.9 percent since Oct. 24, paring its decline this quarter to 7.6 percent.

``Investors are turning away from risk aversion,'' said Jacqui Douglas, a currency strategist at TD Securities in Toronto. ``Markets seem to be willing to move into riskier currencies,'' including the Canadian dollar.

Canada's currency, dubbed the loonie for the aquatic bird on the one-dollar coin, climbed as much as 2.9 percent to C$1.1480 per U.S. dollar, from C$1.1814 yesterday. It reached C$1.1306 on Oct. 14. Canada's dollar traded at C$1.1523 at 2:26 p.m. in Toronto. One Canadian dollar buys 86.79 U.S. cents.

Crude oil climbed as much as $7.86 a barrel, or 12.3 percent, to $71.77, while natural gas rallied as much as 7.6 percent to $7.36 per million British thermal units. The commodities generated 17 percent of Canada's 2007 export revenue, according to Statistics Canada.

Gold futures rose the most in six weeks. Aluminum and copper also climbed.

Barrick Gold Corp., the world's biggest bullion mining company, climbed 9.7 percent to C$28.86 on the Toronto Stock Exchange. Talisman Energy Inc., the Canadian oil and gas producer spun off from BP Plc, surged 7.6 percent to C$12.55 after its third-quarter profit more than quadrupled on record crude oil prices. Oil reached a record $147.27 a barrel on July 11.

Stocks Gain

The MSCI World Index rose 4.3 percent to 1,002.42, advancing for a sixth day. The Standard & Poor's/TSX Composite Index increased 4.1 percent in Toronto.

``Moderation in risk aversion continues to support Canadian dollar gains,'' George Davis, chief technical analyst at RBC Capital Markets, wrote in a note today.

The Reserve Bank of Australia cut borrowing costs 0.75 percentage point, more than economists forecast, sparking speculation the Bank of England and European Central Bank will reduce interest rates more than expected when they meet on Nov. 6, Douglas said.

``The markets are more optimistic that central banks will do whatever they have to do,'' said Douglas, who predicts the loonie will weaken to C$1.25 by year-end.

Canada's government will release data on building permits on Nov. 6, and the following day on employment.

10-Year Yield

The yield on the 10-year government bond was little changed at 3.80 percent. The price of the 4.25 percent security maturing in June 2018 rose 3 cents to C$103.61.

The two-year note's yield fell 2 basis points to 1.99 percent. The price of the 2.75 percent security due in December 2010 rose 4 cents to C$101.54.

The 10-year bond yielded 181 basis points more than the two- year security, from 179 basis points yesterday. The so-called yield curve is the steepest since May 2004.

Benoit Lalonde, vice president of fixed income at Laurentian Bank Securities in Montreal, a unit of Canada's seventh-largest bank, predicts the curve will steepen beyond levels seen in January 2002, when it widened to 243 basis points.

``We're going back into deficit, so that means a lot of supply from all levels of government and that means a steeper curve,'' said Lalonde. ``Our GDP will be dragged down by the states, and you can't perceive anything but lower rates. We haven't seen a hard recession like the one we're experiencing in the past 15 years.''

The U.S. is Canada's largest trading partner.

Canadian Finance Minister Jim Flaherty announced his first spending cutbacks yesterday as the country copes with a slowing economy. Flaherty has hinted that Canada may need to post a deficit next year, ending a record streak of 11 consecutive budget surpluses.

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

Last Updated: November 4, 2008 14:34 EST