CANADA FX DEBT-C$ ends higher after surprise trade surplus

* C$ ends at 95.20 U.S. cents

* C$ nears one-week high at 95.43 U.S. cents

* Canadian bond prices lower, but outperform Treasuries

* Canada unexpectedly posts trade surplus in October (Updates to close)

TORONTO, Dec 10 (Reuters) - The Canadian dollar finished higher against the U.S. currency on Thursday after Canada posted a surprise trade surplus in October after three months of deficits.

After hitting its highest level in nearly a week, 95.43 U.S. cents, on the trade surplus data, the Canadian dollar pared gains as the market took a second look at the composition of the surplus. [ID:nN10154628]

Sales of metals and energy products fueled growth in exports to the United States. But imports fell with a third straight decline in machinery and equipment, which suggested weak business investment despite a strong currency.

"A fair bit of that reaction came on the heels of the trade numbers, which at first blush, was Canada-positive, then deemed to be not quite as positive after looking at the split between exports and imports," said Jack Spitz, managing director of foreign exchange at National Bank Financial.

"So there was no follow-through buying of Canadian dollars on the back of those numbers."

Analysts said the data still points to stronger fourth-quarter economic growth, and that helped the currency hold most of its gains.

Strength in equity markets, a barometer of risk, also aided the Canadian dollar, as did a steady price of oil.

The Canadian dollar finished at C$1.0504 to the U.S. dollar, or 95.20 U.S. cents, up from C$1.0545 to the U.S. dollar, or 94.83 U.S. cents, on Wednesday.

Spitz said there was a fair bit of noise in the market but that most currencies were relatively flat for most of the day. He said the market was watching for further weak links in the global economy, after Greece's credit rating was cut this week.

BONDS DROP

Canadian bond prices were lower across the curve, partly because of Thursday's rise on stock markets.

Also, Canadian bonds took note of a poorly bid 30-year debt auction in the United States, the second weak auction in as many days, raising worries about financing the huge U.S. federal deficit.

Canadian government bonds outperformed U.S. issues, with the Canadian 10-year yield 13.3 basis points below its U.S. counterpart, compared with 11.7 basis points the previous session.

The two-year Canadian government bond fell 3 Canadian cents to C$100.07 to yield 1.216 percent. The 10-year bond sank 33 Canadian cents to C$103.17 to yield 3.356 percent.

U.S. retail sales for November may set the tone for markets on Friday, as investors watch for further signs of traction in the U.S. economic recovery. Canada will publish its new housing price index for October. (Reporting by Ka Yan Ng; editing by Peter Galloway)