CANADA FX DEBT-Canada dollar weakens on Spain bank rescue worries

Mon Jun 11, 2012 4:42pm EDT
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* C$ softens to C$1.0312 vs US$, or 96.97 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 weakened
against its U.S. counterpart on Monday, a s investors continued
to worry about the euro zone's debt problems even after the
approval of a rescue package for Spain's banking sector.	
    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.
    "I don't think anyone's really convinced that the Europeans
have done enough to get ahead of the curve here," said Shaun
Osborne, chief currency strategist at TD Securities. 	
    "The numbers involved in the bank bailout scheme appear to
be quite substantial, but I think there's some concern that we
haven't really got the full details on just how this is going to
be implemented."	
    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," s aid Jeremy Stretch,
head of foreign exchange strategy at CIBC World Markets in
London. "Bu t when you sit down in the cold light of day ... the
bank bailout does nothing to deal with the paucity of growth in
    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.	
    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 closed at C$1.0312 , or 96.97 U.S. cents, weaker than
Friday's close at C$1.0270, or 97.37 U.S. cents.	
    Osborne said he saw Canada's dollar trading between C$1.025
and C$1.035 in the next 24 hours.	
    The euro also surrendered all of its earlier gains
against the U.S. dollar a s investors focused on the deal's
obligations, and Spanish and Italian bond yields rose sharply. 
[FR X/]	
    Canadian bond prices rose, with the two-year bond 
u p 7 Canadian cents to yield 1.007 p ercent, while the benchmark
10-year bond wa s up 43 Canadian cents at 1.765
per cent.