* Hits high of 94.42 U.S. cents
* Spurred by firm equities, economic outlook
* Bonds lower as equity markets firm (Updates prices, new commentary)
By Jennifer Kwan
TORONTO, Sept 17 (Reuters) - The Canadian dollar reached its highest level in 11 months against a generally lower U.S. currency on Thursday, spurred by firm equity markets.
It hit an overnight high of C$1.0606 to the U.S. dollar, or 94.29 U.S. cents, then extended those gains by midmorning to touch C$1.0591 to the U.S. dollar, or 94.42 U.S. cents, as the price of oil and strengthening equity markets lent support.
Expectations of an economic recovery encouraged investors to look for higher-yielding assets. A report on Thursday showing factory activity in the U.S. Mid-Atlantic region rose in September to the highest level since June 2007, adding to risk appetite.
"We continue to see equity markets trade at a resilient fashion which is pushing risk-aversion levels lower. That, in turn, is contributing to broader-base U.S. dollar weakness," said George Davis, chief foreign exchange strategist at RBC Capital Markets.
"The lower levels of risk aversion and the off tone in the U.S. dollar are probably the primary factors that are pushing dollar/Canada to the downside."
At 11:25 a.m. (1525 GMT), the Canadian dollar had eased slightly to C$1.0612 to the U.S. dollar, or 94.23 U.S. cents, up from Wednesday's close at C$1.0649 to the U.S. dollar, or 93.91 U.S. cents.
Government data released on Thursday morning showed consumer prices fell by 0.8 percent in August compared with a year earlier, the second-largest 12-month drop in over 50 years. Core inflation ticked up 0.1 percent on the month and 1.6 percent year-on-year. [ID:nN17185718]
The report was largely in line with expectations and had little effect on the currency.
BONDS LOWER
Canadian bond prices slipped across the curve, extending losses seen in the previous session as world stocks continued their ascent.
The two-year bond