* Canada dollar rebounds from lowest level since Sept 2004
* Citigroup memo spurs stock markets, whets risk appetite
* Bonds lower as stocks gain
* Finance minister says jobs data unlikely to be good (Updates to close)
By Ka Yan Ng
TORONTO, March 10 (Reuters) - The Canadian dollar rose against the U.S. dollar on Tuesday as the market's appetite for risk was whetted by a big gain on stock markets spurred by a Citigroup memo that built confidence in bank shares.
Early support for the currency also came from stronger oil prices, which spiked to above $48 a barrel before turning lower to close under $46.
As the price of oil receded, so did some of the Canadian dollar's advance against the greenback. The Canadian dollar hit a midmorning high of C$1.2725 to the U.S. dollar, or 78.59 U.S. cents, before paring gains. But it still finished well above Monday's close.
The Canadian currency ended at C$1.2852 to the U.S. dollar, or 77.81 U.S. cents, up from C$1.2991 to the U.S. dollar, or 76.98 U.S. cents, at Monday's close.
The rise came after the Canadian dollar fell on Monday to its lowest level versus the U.S. dollar since September 2004 as economic gloom prompted investors to sell riskier assets.
"A few factors just lined up in a positive fashion, but none of them really lasted that long through the day except for the equity market story," said David Watt, senior currency strategist at RBC Capital Markets.
Global banking fears were assuaged by news on Tuesday that the chief executive of financial giant Citigroup told employees in a memo that the bank was profitable in the first two months of 2009 and that he was "confident" about its capital strength after tough internal stress tests. [ID:nN10541492]
The memo was enough to lift sentiment across global stocks, including the Toronto Stock Exchange, and helped the Canadian dollar rise towards a one-week high.
The Canadian dollar has been tracking the movements on the Toronto stock market recently, partly as a reflection of risk appetite and partly due to the tight links to commodity prices, especially oil, a key Canadian export, that they have in common.
Canadian bond prices were lower across the curve as world stocks rose after three straight days of declines and ahead of this week's flood of new supply.
Some $63 billion in U.S. government notes and bonds is due to be absorbed this week and Canadian bonds were being dragged down "kicking and screaming" alongside U.S. Treasuries, said Eric Lascelles, chief economics and rates strategist at TD Securities.
"Canadian bonds continue to outperform the U.S. but they are selling off on an absolute basis and I think you do need to probably pin supply to that," he said.
"Of course, it's not just supply. It's an absence of compelling economic data."
As market players get over the supply hurdle, they will also face Canadian jobs data on Friday. "These numbers are not likely to be good," Finance Minister Jim Flaherty told the Canadian Senate's finance committee on Tuesday. [ID:nN10512441]
A Reuters survey found analysts expect the economy to have shed 52,500 jobs in February after a drop of 129,000 jobs in January.
Canadian trade data for January, also on Friday, could be as headline-grabbing as the jobs figures because of forecasts for a big deficit.
The two-year bond slipped 6 Canadian cents to C$103.00 to yield 0.990 percent. The 10-year bond lost 53 Canadian cents to C$106.62 to yield 2.992 percent.
The 30-year bond dropped C$1.35 to C$122.60 to yield 3.719 percent. The U.S. 30-year bond yielded 3.720 percent. (Reporting by Ka Yan Ng; Editing by Peter Galloway)