10/05/2011 08:56 EDT | Updated 12/05/2011 05:12 EST

Canadian dollar advances amid hopes for recapitalisation of European banks

TORONTO - The Canadian dollar closed higher Wednesday as oil prices surged and traders proved willing to take on more risk after European Commissioner Olli Rehn hinted at a possible recapitalization plan to shore up Europe's battered banks.

The loonie rose 1.34 cents to 96.14 cents US. The gain followed five straight days of losses that chopped as many as four cents from the loonie amid falling commodity prices and a flight to safety as traders bought up U.S. Treasurys.

Crude oil for November delivery surged $4.01 to US$79.68. Oil broke a three-session losing streak after a weekly government supply report surprised markets by showing a steep decline in crude inventories, which indicated demand may be growing.

Hopes for the recapitalization plan were muted as Rehn gave no details of the proposals under discussion.

The rising uncertainty over a possible default by Greece have increased market volatility and destabilized the banking sector.

Recapitalizing eurozone banks could limit the damage to the financial system should the Greek government default.

Meanwhile, an announcement that ratings agency Moody's Investor Services had downgraded Italy's debt by three notches to A2 was taken in stride on financial markets. Moody's cited high debt, a weak global economy and political uncertainties.

Copper prices stabilized after three days of losses resulting from worries about slowing global economies with the December contract unchanged at US$3.11 a pound. Copper is widely viewed as a barometer for the health of the overall global economy since it is used in electronics, homes and infrastructure.

Bullion prices advanced, with the December contract up $25.60 to US$1,641.60 an ounce.