TORONTO - The Canadian dollar gained ground against the U.S. dollar Monday as the commodity-linked loonie got a boost from gold prices that closed at a six-week high.

The Canadian dollar turned around an earlier loss to add 0.39 of a cent to close at 98.75 cents US after bouncing between gains and losses on mixed headlines out of Europe as traders sought safety in both gold and the greenback.

"The Canadian Dollar is swinging between bullishness because of the apparent settlement of the Greek situation and the looming Italian debt crisis," said Bob Tebbutt of Peregrine Financial Group Canada Inc.

Greece has stepped back from the brink, promising to cobble together a unity government that looks like it will continue with fiscal reforms, but Italian Prime Minister Silvio Berlusconi faces a confidence vote this week.

The uncertainty pushed gold prices up $35 to US$1,791.10 an ounce. That was the highest it has closed at since Sept. 21 when it closed over $1800 an ounce. Oil added $1.26 cents to US$95.52 a barrel, while copper shed three cents to US$3.54 a pound.

Following last week's turmoil centred on worries that Greece was heading for imminent bankruptcy, investor fears are now focused on Italy, the eurozone's third-largest economy.

If its cost of borrowing goes up too much, Italy won't be able to raise the money it needs to roll over its debts, creating big problems for the European banking system and the global economy.

Greece's two main political parties reached a deal over the weekend to share power in a new government. That relieved investors by reducing the chances of an imminent default by Greece, which would rattle financial markets and cause losses for major European banks.

Italy's borrowing rates spiked Monday, however. Prime Minister Silvio Berlusconi has rejected suggestions that he resign to make way for more cost-cutting.

Events this week that could impact the Canadian dollar include that Italian confidence vote on Tuesday, an interest rate statement by the Bank of England on Thursday and U.S. trade, employment and consumer sentiment data on Thursday and Friday.

The loonie lost nearly a full cent Friday on data that showed Canada shed a net 54,000 jobs in October.