October 24, 2011 / 6:33 PM / in 6 years

Loonie pushes near parity on Europe optimism

TORONTO (Reuters) - The Canadian dollar hit a one-month high against its U.S. counterpart on Monday as investors bet on a positive outcome to talks on the euro zone debt crisis and risk appetite was whetted by healthy economic data from China.

<p>A Canadian dollar coin, commonly called a "Loonie" and an American dollar bill are seen in this staged photo in Toronto, March 17, 2010. REUTERS/Mark Blinch</p>

The safe-haven U.S. dollar weakened against a basket of major currencies and world stocks rose after a weekend meeting of policymakers in Brussels, where agreements were said to be near on bank recapitalization and on how to leverage the European Union’s EFSF rescue fund to try to stop bond market contagion. <MKTS/GLOB>

“It’s just good tidings coming out of Europe. We’re carrying over the sentiment from late last week where policymakers were actually able to give us a pretty good clear indication of what to expect, when,” said David Tulk, chief Canada macro strategist at TD Securities.

Increased appetite for risk assets was bolstered by a sharp rise in China’s flash purchasing managers’ index, suggesting that manufacturing in the world’s second-largest economy expanded moderately in October after three months of contraction.

The figures eased fears that China’s economy was heading for a hard landing, a major concern for global investors, along with the euro zone crisis and the slowdown in the United States. The data boosted the Canadian dollar and other commodity-linked currencies.

“The fact that China can grow in the absence of developed markets growth is encouraging,” said Tulk, noting that disappointing PMI data in Europe was overshadowed by good signs from developing markets.

The Canadian dollar ended the North American session at C$1.0031 to the U.S. dollar, or 99.69 U.S. cents, above Friday’s North American session close of C$1.0087 to the U.S. dollar, or 99.14 U.S. cents.

The currency climbed as high as C$1.0021 to the U.S. dollar, its strongest level since September 21, when it fell below parity with the U.S. dollar due to global growth fears.

Final decisions by European leaders on dealing with the debt crisis were deferred until a second summit on Wednesday, and sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.

Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London, said investors will remain skittish due to constant rumors about the next development in euro zone debt talks, alert for any reports that Wednesday’s summit could be postponed.

“There’s still a great deal of uncertainty and nervousness in terms of the euro zone story and I think that’s keeping investors, to an extent, on the sidelines,” Stretch said.

Canadian government bond prices were mixed. The two-year bond was down 3 Canadian cents to yield 1.098 percent, while the 10-year bond rose 6 Canadian cents to yield 2.359 percent.

Editing by Rob Wilson

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