The Canadian dollar hit its highest level since November 2007 on Wednesday, driven by rising oil prices and concerns about spreading Middle East conflict.

The loonie rose 0.41 of a cent, hitting 103.35 cents US, before closing at 103.23, for a gain of 0.29.  

The dollar has risen along with the price of Canada's single biggest commodity export, oil, which has surged amid fighting between supporters and opponents of Libyan leader Moammar Gadhafi. Oil is up about 17 per cent since Feb.18.

The April contract for the North American benchmark, light sweet crude, closed 64 cents lower on the New York Mercantile Exchange at $104.38 US a barrel.

But the European benchmark, Brent crude, which better reflects concerns about lost Libyan production,  jumped more than two per cent to $115.65 a barrel.

Traders in this market are now concerned that unrest in Libya and other countries could spread to Saudi Arabia, the world's biggest oil producer.

Bank of America Merrill Lynch raised its 2011 oil price forecast to $101 US from $87 US and expects Brent crude to average $122 US in the second quarter.

But, earlier in the week, a report from investment house Brown Brothers Harriman said the common wisdom might overestimate Canada's link to oil prices.

The New York firm noted that crude oil prices have risen about 25 per cent since February. By contrast, the Canadian dollar has only moved up two per cent, an indication of a weak — not a strong — relationship between oil prices and the country's economy, BBH said.

With files from The Canadian Press