Canada dollar slips as Spanish fears trump China moves

Tue May 29, 2012 9:07am EDT
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar backed off from a one-week high against its U.S. counterpart on Tuesday as worries over Spain's escalating borrowing costs and its weakening banking sector offset hopes that China may soon unveil more spending measures to support flagging growth.

Worries about the cost of shoring up Spain's banks kept Spanish debt yields elevated while the gap between them and German 10-year yields remained near euro-era highs, as the risk grew that Spain may be forced to seek an international bailout.

"The main thing on my mind this morning continues to be Europe ... certainly a lot of news out of Spain, I think that's continuing to roil the markets a little bit," said Steve Butler, director of foreign exchange trading at Scotiabank.

"I still think that overall, we'll see more U.S. dollar strength as the market continues to worry."

At 8:05 a.m. (1205 GMT), the Canadian dollar stood at C$1.0249 versus the U.S. dollar, or 97.57 U.S. cents, down from Monday's North American session finish at C$1.0238 versus the U.S. dollar, or 97.68 U.S. cents.

Earlier, the currency was as firm as C$1.0208, or 97.96 U.S. cents, its strongest level since May 22 as investors reacted enthusiastically to reports of possible new stimulus from China.

Chinese media reported that the government might pump as much as 2 trillion yuan ($315.28 billion) into the economy this year, although this would be well below 4 trillion yuan ($635 billion) of stimulus it did in the wake of the 2008-09 global financial crisis.

As well, the official Shanghai Securities News said China's biggest banks appeared to have accelerated lending toward the end of this month as Beijing starts to fast track its approval of infrastructure investments.   Continued...