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* C$ softens to C$1.0297 vs U.S., or 97.12 U.S. cents * Boost from Spanish bank deal proves short-lived * Bond prices mostly higher By Allison Martell TORONTO, June 11 (Reuters) - Canada's dollar erased early gains and weakened against its U.S. counterpart on Monday, as a relief rally that followed the approval of a rescue package for Spanish banks fizzled, with investors still worried about euro zone's debt problems. Concerns about how the Spanish bailout would be financed weighed on sentiment, along with the fear Greek elections on Sunday could put Athens on a path to leaving the currency bloc. "The risk bounce on the Spanish bank bailout has proved to be very temporary," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London. The weekend deal by the 17-nation currency area to lend Madrid up to 100 billion euros ($125 billion) for its bank rescue fund, more than an initial audit suggests it is likely to need, is an attempt to reassure investors and erect a new firewall in the crisis. "The fact that the authorities have actually got together and done something was seen as a positive," said Stretch. "But when you sit down in the cold light of day ... the bank bailout does nothing to deal with the paucity of growth in Spain." Stretch said the banks' underlying solvency problems cannot be fixed with additional capital as long as sluggish growth continues to lower the value of their collateral. He noted there are also questions about where the money will come from. "Tremendous uncertainty for Europe remains," said Camilla Sutton, chief currency strategist at Scotiabank. The Canadian dollar initially rose to C$1.0202 against the U.S. dollar, its strongest since May 22, following news of the rescue plan. But it later weakened to a session low of C$1.0297 versus the greenback, or 97.12 U.S. cents., compared with Friday's close at C$1.0270, or 97.37 U.S. cents. The euro also surrendered all of its earlier gains against the U.S. dollar and Japanese yen. Stretch said the Canadian dollar could weaken to C$1.0345 on Monday, but was unlikely to soften much further. With no major Canadian data set for release on Monday, investors were expected to look to Europe developments and a string of talks by North American central bankers for market guidance. Canadian bond prices rose, with the two-year bond up 30 Canadian cents to yield 1.026 percent, while the benchmark 10-year bond was up 27 Canadian cents at 1.0782 percent.