* C$ ends at 95.38 U.S. cents
* Buoyed by commodities, economic outlook
* October GDP up, but slightly weaker than forecast (Updates to close)
By Ka Yan Ng
TORONTO, Dec 23 (Reuters) - The Canadian dollar finished higher against the U.S. currency for a fourth straight session on Wednesday, lifted by rising oil prices and hopes for a solid economic recovery, and the potential for further diversification by foreign central banks.
The Canadian dollar hit a more than two-week high against the U.S. currency after Finance Minister Jim Flaherty said in an interview with Bloomberg that China and Russia may diversify their currency reserves into Canadian dollars. [FRX/]
The currency's gains came on the heels of remarks by Prime Minister Stephen Harper that Ottawa will be fiscally disciplined as the government continues stimulus spending until 2011.
An oil price that rose above $76 a barrel was also supportive for the Canadian dollar, as was a positive tone to equity markets on Wednesday. Strength in equities and oil are often key supports to the Canadian dollar, as a gauge of risk appetite.
"It's a perfect storm for the Canadian dollar," said Camilla Sutton, currency strategist at Scotia Capital.
The currency pared some gains after data showed the economy grew at a slower pace than expected in October, although analysts said the details of the GDP report were encouraging as it marked the first back-to-back monthly gains in two years.
The economy grew by 0.2 percent in October from September, the second consecutive monthly increase, but below analysts expectations for a 0.3 percent increase from September. [ID:nN23149061]
Canada officially emerged from recession in the third quarter of this year.
"It was slightly below consensus, attracting some bids into dollar/Canada but nothing dramatic," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"There is clearly a directional bias to buy North American and sell Europe."
By session's close, the Canadian dollar had fully recovered its post-GDP move. It finished at at C$1.0484 to the U.S. dollar, or 95.38 U.S. cents, up from Tuesday's finish at C$1.0579 to the U.S. dollar, or 94.53 U.S. cents.
While ongoing optimism about the recovery added to positive momentum for the currency, market watchers cautioned that price moves across most markets are easily swayed by thin pre-holiday trade.
BONDS TURN HIGHER
Canadian bond prices largely shrugged aside the slight miss on the GDP data, but turned higher as a pair of U.S. economic indicators breathed new life into safe haven plays.
New home sales and consumer spending data in the United States came in below expectations, prompting some interest in the relative safety of government debt. Major North American stock markets also cut earlier gains as well.
The two-year government bond
Canadian notes outperformed against U.S. bonds, with the 10-year yield spread widening to 17.8 basis points below its U.S. counterpart from 16.6 basis points the previous session. (Additional reporting by Jennifer Kwan; editing by Rob Wilson)