February 21, 2012 / 9:34 PM / in 6 years

Loonie tugged lower by doubts over Greek bailout

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday on investor doubt about the implementation of a long-awaited second bailout deal for Greece.

After 13 hours of talks, euro zone ministers finalized a 130 billion euro ($172 billion) agreement after forcing Athens to commit to unpopular budget cutbacks and for private bondholders to accept deeper losses, ensuring the government can meet a debt repayment due next month.

But European shares ended lower in thin volume, with investors cashing in on recent highs, as the bailout failed to completely soothe concerns about the future of the euro zone’s most troubled country.

“We had an agreement for Greece, which I think is generally positive, but I think most of that was already factored into markets before the long weekend,” said Camilla Sutton, chief currency strategist at Scotia Capital.

“I think the reality is there is no easy, quick solution for Europe so that is still front and center.”

The Canadian dollar finished at C$0.9966 versus the U.S. dollar, or $1.0034, off from Monday’s close at C$0.9924, or $1.0077. On Friday, it closed the North American session at C$0.9957 versus the U.S. dollar, or $1.0043.

Most Canadian markets were closed on Monday for a holiday, as was Wall Street.

The deal was offset by worries the austerity plan would severely weaken Greece’s already struggling economy and make it harder for Athens to repay its debts. The sharp cuts in the value of bonds held by private creditors also mean it will be hard for the country to borrow from capital markets again.

“There are still some hurdles to get over in terms of the degree of private sector participation and whether or not that means that the Greek government has to use the collection action clauses that it’s setting up in the next few days. And that uncertainty will overhang the markets for a couple of weeks,” said Adam Cole, global head of currency strategy at RBC Capital Markets in London.

Scotia’s Sutton also said the Canadian currency followed the muted action on U.S. equity markets. U.S. stocks ended little changed on Tuesday, paring gains after the Dow rose above 13,000 for the first time since May 2008, and as higher oil prices threatened prospects for the economy. .N

Sutton said the Canadian dollar would in the near term likely remain trapped in a range of C$0.9907 to C$0.9984 against the U.S. dollar.

Canadian bond prices were weaker across the curve as Greece spoiled some appetite for safe-haven assets, mirroring moves in the big U.S. Treasury market where prices retreated despite some concerns about Athens’ implementation of the austerity measures.<US/>

The two-year bond sagged 2 Canadian cents to yield 1.110 percent. The 10-year bond dropped 27 Canadian cents lower to yield 2.089 percent.

Additional reporting by Claire Sibonney; editing by Rob Wilson

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