TORONTO (Reuters) - The Canadian dollar rose against the greenback yesterday, underpinned by Canadian housing data that helped fan optimism the economy is set to recover and by a move by Toronto equities off their early lows.

After falling as low as C$1.1291 to the US dollar, or 88.57 US cents, the currency finished up at C$1.1168 to the US dollar, or 89.54 US cents. That is up slightly from C$1.1190 to the US dollar, or 89.37 US cents, at the close of Friday's session.

"We are getting a little bit of traction from the better than expected housing starts numbers," said Charmaine Buskas, senior economics strategist at TD Securities.

"It's just one data point so far but it does suggest that at least in the month of May there was a little bit of upside in the Canadian housing market not only in terms of the headline number, but in terms of the composition."

Canadian housing starts rose 9.2 percent in May and the increase was broadly based, encompassing both single and multiple segments, the Canada Mortgage and Housing Corp. said.

Also supporting the Canadian dollar was the late-day bounce-back of Toronto's main stock market index from its sharp drop in early trade, which suggested "a little bit appetite for risk," Ms Buskas said.

The S&P/TSX composite index closed down 20.17 points, or 0.19 percent, at 10,549.12 after dropping 1.8 percent right after the open.

Matthew Strauss, senior currency strategist at RBC Capital Markets, said the glow from better than expected US employment numbers on Friday was lingering in the market.

"If we do see a recovery in the second half of the year that will benefit Canada," Mr. Strauss said. "The news that is positive for the US dollar is indirectly positive for the Canadian dollar."

The greenback strengthened on speculation the US Federal Reserve may have to tighten interest rates sooner than anticipated following Friday's US jobs data, which showed far fewer job losses than anticipated.

Canadian bond prices were mostly lower, in line with the US Treasuries market, where yields spiked to seven-month highs on speculation that the slowing rate of job losses in the US pointed to an economic recovery.

That belief has led to fears that the Federal Reserve will raise interest rates sooner than expected

"There's weakness from the US Treasury market on early speculation the Fed may tighten," said Sal Guatieri, senior economist, BMO Capital Markets.

The benchmark two-year government bond fell 28 Canadian cents to C$99.68 to yield 1.415 percent, while the 10-year bond fell 75 Canadian cents to C$101.85 to yield 3.528 percent.

The 30-year bond dropped 55 Canadian cents to C$116.55 to yield 4.010 percent. The comparable US Treasury issue yielded 4.6432 percent.

Canadian bonds mostly underperformed US Treasuries across the curve. The Canadian 30-year bond was about 63 basis points below the US 30-year yield, compared with about 66 basis points below on Friday.