October 1, 2012 / 2:14 PM / 5 years ago

Canadian dollar strengthens as some European fears ease

TORONTO (Reuters) - The Canadian dollar strengthened slightly against its U.S. counterpart on Monday, tracking equity-market gains after a report showed problems in Spain’s banking sector were no worse than markets had feared.

The report, and hopes for aggressive action by big central banks to stimulate economic growth, more than offset evidence that the euro zone’s economy was heading for a second recession in three years. <MKTS/GLOB>

“If the risk environment holds up as we go through the afternoon here in Europe, then it should be the case that dollar/CAD tests lower and grinds down to the $0.98 threshold,” said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.

“Anything below $0.9780 looks considerably out of reach.”

At 9:28 a.m. (1328 GMT), the Canadian dollar stood at C$0.9821 against the U.S. dollar, or $1.0182, after closing out last week at $0.9832, or $1.0171.

The currency brushed off data showing Canadian producer prices slipped in August.

Another report showed the pace of growth in Canadian manufacturing fell for a third straight month in September, hitting a six-month low, another sign that economic momentum is slowing in Canada as it is worldwide.

Stretch said the currency would likely not see too much more strength at least until Friday, when both Canada and the United States issue employment data.

“It’s going to be pretty tough to make too much traction below there unless we get further improvements from the global side,” he said.

Canadian government bond prices were mixed, with the 10-year bond rising 7 Canadian cents to yield 1.72 percent, while the 30-year issue fell 7 Canadian cents to yield 2.323.

With additional reporting by Jeffrey Hodgson; Editing by Peter Galloway

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