* C$ breaches 90 U.S. cent level before paring gains
* Month-end positioning blamed for retracement
* Bond prices knocked lower across curve (Updates to session close)
By Frank Pingue
TORONTO, May 27 (Reuters) - The Canadian dollar fell versus the greenback on Wednesday as its brief climb above 90 U.S. cents during the session convinced some traders to reassess their positions heading into the end of the month.
The Canadian dollar rallied to its highest level since early October around midday, but late in the session it turned lower and relinquished a chunk of the sharp gains recorded in recent months.
"A little bit of a wobble at the end of the session," said Steve Butler, director of foreign exchange trading at Scotia Capital. "I think the market, getting into month-end, is just a little bit nervous about being too short U.S. dollars."
When the Canadian currency hit its session high of C$1.1098 to the U.S. dollar, or 90.11 U.S. cents, it marked a climb of more than 17 percent from the four-year low below 80 U.S. cents that it fell to in early March.
But the Canadian dollar could not hold on to the gains and ended the session at C$1.1195 to the U.S. dollar, or 89.33 U.S. cents, down from C$1.1178 to the U.S. dollar, or 89.46 U.S. cents, at Tuesday's close.
Butler also said another drag on the Canadian dollar was a surge in U.S. Treasury yields as prices dropped even though new debt issues were well received. Investors opted to snap up new debt, which eased fears that the U.S. government deficit had soured foreigners on holding U.S. assets. [ID:nTAR000636]
Helping to cushion the Canadian dollar's latest skid was a rise in the price of oil to a six-month high. [ID:nSYD212068] Oil is a key Canadian export and its price often influences the general direction of the country's currency.
It was higher oil prices and positive signs of a recovering global economy that fueled the Canadian dollar's rally during the first half of the North American session on Wednesday.
A report from TD Securities said it expects the Canadian dollar to reach parity with the U.S. currency due to weakness in the greenback and a view that the economic situation in Canada is relatively attractive from a fundamental point of view.
A Canadian dollar has not been worth more than a U.S. dollar since July 2008.
BOND PRICES TUMBLE
Canadian bond prices ended lower across the curve alongside the bigger U.S. Treasury market due to nagging concerns about growing supply of government bonds.
The slide in prices came even after a well-received auction of new five-year notes in the United States and three-year bonds in Canada.
Mark Chandler, a fixed income strategist at RBC Capital Markets, said supply concerns were still weighing pretty heavily on the bond market and that he would have expected prices to perform better given the slide in North American equities on Wednesday.
The benchmark two-year government bond dropped 11 Canadian cents to C$99.96 to yield 1.270 percent, while the 10-year bond fell C$1.30 to C$101.50 to yield 3.570 percent.
The 30-year bond tumbled C$1.65 to C$113.60 to yield 4.172 percent.
Canadian bonds outperformed their U.S. counterparts across long end of the curve. The 30-year bond yield was about 47 basis points below the U.S. 30-year yield, compared with about 11 basis points on Tuesday. (Editing by Peter Galloway)