TORONTO (Reuters) - The Canadian dollar finished higher against the greenback yesterday, but its gains were limited ahead of key domestic data and a cloud of caution that continues to hover over the market.

Domestic bond prices dropped amid rallying North American equity markets as dealers unwound recent flight-to-safety bids that had been triggered by nagging credit concerns.

The Canadian dollar closed at C$1.0605 to the US dollar, or 94.30 US cents, up from C$1.0651 to the US dollar, or 93.89 US cents, at Tuesday's close.

With no domestic data to consider during the session, the Canadian dollar was unable to take advantage of rallying equity prices and bounced around in a range of C$1.0584 to C$1.0624.

"There is a little less of a flight to safety bid to the market and that tends to benefit the second-tier currencies like the loonie," said Sal Guatieri, senior economist at BMO Capital Markets.

"But the sense that the Bank of Canada is on hold for quite some time and won't be raising interest rates is probably still lingering and weighing on the currency."

Part of the Canadian currency's failure to take advantage of favorable equity market conditions was pegged to hesitation ahead of several piece of domestic data still due this week.

Current account surplus, producer prices and raw materials reports are due today, but the week's key report will arrive tomorrow when second-quarter gross domestic product figures are released.

The GDP report, which marks the last piece of data the Bank of Canada will consider ahead of its September 5 rate announcement, is expected to show annualised growth of 2.8 percent, according to a Reuters survey.

The remaining data will likely not convince the bank to go against expectations and alter the overnight rate next week, but it could help clear the October rate picture, where current estimates range from a cut, to no move, to a hike.

Canadian bond prices tumbled as a bigger appetite for risk convinced investors to take advantage of beaten down share prices and hand sharp gains to North American equity markets.

Bonds are considered safe-haven investments and generally do not perform well when equity markets rally.