OTTAWA, July 2 (Reuters) - The Afghan army has made "huge progress" over the last two years and is now capable of leading missions against the Taliban, Canada's top soldier said on Wednesday.

General Walt Natynczyk, speaking just minutes after he formally took over as new chief of Canada's defense staff, said he had been particularly heartened by an offensive last month against militants in the southern town of Arghandab.

Nearly 100 Taliban were killed in the battle, one of the biggest yet fought by the new-born Afghan National Army (ANA). Canada says it wants to focus on training the ANA before the 2,500 Canadian soldiers in Afghanistan leave in 2011.

"What is terrific to see here, through the Arghandab piece, was that the Afghan military -- the Afghan army that we have trained with this past two years -- are actually stepping up. It was their plan, it was their leaders, and with that they have renewed confidence," Natynczyk said.

"We see huge progress with the Afghan army," he told reporters, conceding that it would still take time to train more senior officers.

Since Canada sent troops to Afghanistan in 2002, 85 Canadian soldiers and one diplomat have been killed.

A suicide car bomber hit a convoy of NATO forces on Wednesday, wounding two Canadian soldiers near the southern town of Spin Boldak, a border police commander said.

Insurgent attacks in eastern Afghanistan are up by 40 percent in the first five months of this year over the same period a year ago.

When asked asked about the increased attacks on NATO troops, Natynczyk replied: "We knew there would be a spring and summer campaign season and we're in it now. I mean, everyone was predicting that a little while ago, and we're into the fight right now." (Reporting by David Ljunggren; Editing by Peter Galloway)

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