* C$ rises to 96.52 U.S. cents
* Bond prices fall as stocks gain
* Canada inflation rate in June slows to 1 pct
* European stress tests, U.S. results help confidence (Updates to close)
By Ka Yan Ng
OTTAWA, July 23 (Reuters) - The Canadian dollar edged higher against the U.S. currency on Friday for a second straight session, as investors looked past domestic inflation data and were heartened by more evidence of confidence in the economic recovery.
Some U.S. manufacturers, such as Honeywell International (HON.N: Quote, Profile, Research, Stock Buzz), raised their 2010 profit forecasts, while General Electric (GE.N: Quote, Profile, Research, Stock Buzz) boosted its dividend. Both moves were seen as encouraging signs for a U.S. economy that has recently been subject to fears of falling back into recession. [ID:nN2393794]
Anxiously awaited results from European bank stress tests also appeared to be taken in stride, though concerns were raised that the tests were too soft. Seven of 91 European banks failed the tests to gauge their strength, fewer than expected. [ID:nLDE66M1T3] [ID:nSGE66M07W]
These outside influences on the Canadian dollar overtook domestic inflation data that showed inflation eased in June to an annual rate of 1.0 percent.
Moderating energy prices helped to lower Canada's consumer price index by 0.1 percent in the month from May, suggesting the Bank of Canada has breathing room to take a gradual approach to future interest rate hikes. [ID:nN23500487]
"(Inflation data) was definitely pushed to the side. Most of the focus today was on general market confidence," said Darren Richardson, a corporate dealer at CanadianForex, a commercial foreign exchange firm.
"I think overall the (European stress test) results were okay and the market was taking it on board. We're still very much range-bound."
The Canadian currency CAD=D4 finished at C$1.0361 to the U.S. dollar, or 96.52 U.S. cents, not far from the high of the week touched on Friday at C$1.0346 to the U.S. dollar, or 96.66 U.S. cents. It finished Thursday's session at C$1.0393 to the U.S. dollar, or 96.22 U.S. cents.
It had dropped briefly to a session low of C$1.0440 versus greenback, or 95.79 U.S. cents, after the inflation data but quickly rebounded as market players figured the overall path for Canadian interest rates was still up.
A key technical level to watch is the 100-day moving average which is C$1.03 to the U.S. dollar, said Steve Butler, director of foreign exchange trading at Scotia Capital.
"We tested it four times last week, couldn't ever get a close below it, so I think if we can go down to that C$1.0280 to C$1.03 area that will be really important for the downside," he said.
"Anywhere back up toward that C$1.0560 to C$1.0580 area is going to be certainly the topside and before we get there I think we should probably find a little bit of resistance up toward C$1.05."
BOND PRICES SLIDE
Canadian bond prices fell as riskier assets found favor from the solid U.S. corporate earning results that helped North American stock markets make gains.
The two-year bond CA2YT=RR lost 7 Canadian cents to yield 1.585 percent, while the 10-year bond CA10YT=RR shed 15 Canadian cents to yield 3.231 percent. (Additional reporting by John McCrank and Claire Sibonney in Toronto; editing by Rob Wilson)