TORONTO, Feb 7 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as Wall Street rallied, but gains for the commodity-linked currency were limited as investors grew skeptical of measures being taken by China to help its ailing economy.
The loonie was trading 0.2% higher at 1.3465 to the greenback, or 74.27 U.S. cents, adding to its previous day's gains. It traded in a range of 1.3456 to 1.3493.
"It's a nice day-and-a-half run for the Canadian dollar but I think we're pulling back now because commodities are not really believing the China rescue story," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.
Canada is a major producer of commodities such as copper , which fell 1.3% to hit a three-week low.
China's ousting of its securities watchdog head drew a muted cheer from markets, with investors holding out for bigger measures that would tackle the root of the malaise gripping the world's second-largest economy.
Wall Street's major stock indexes rose, with the benchmark S&P 500 scaling a new record, while the U.S. dollar (.DXY), opens new tab lost ground against a basket of major currencies.
The Canadian dollar is set to strengthen over the coming year if the U.S. Federal Reserve cuts interest rates as expected, but its gains could be held in check as mortgage renewals weigh on household spending and economic growth, a Reuters poll found.
Members of the Bank of Canada's governing council were concerned about cutting borrowing costs too soon amid persistent inflation when they decided to keep the key overnight rate on hold on Jan. 24, minutes showed.
Canadian government bond yields rose across the curve. The 10-year was up 4.5 basis points at 3.473%, while it has climbed about 45 basis points from its December trough.
Reporting by Fergal Smith; Editing by Sandra Maler
