March 12, 2012 / 8:48 PM / 5 years ago

CANADA FX DEBT-C$ dips on weak Chinese data, doubts on Fed

* C$ ends at C$0.9927 vs US$, or $1.0074

* Weak China export data weighs, markets await Fed

* M&A talk supports Canadian currency

* Bond prices move higher across the curve

By Claire Sibonney

TORONTO, March 12 (Reuters) - The Canadian dollar eased against its U.S. counterpart on Monday as weak Chinese export data hurt commodities and as investors remained skeptical that the U.S. Federal Reserve would hint at more steps to stimulate the economy at its meeting on Tuesday.

Data released over the weekend by China showed the commodity-consuming giant posted its biggest trade deficit in at least a decade in February, fanning concerns about growth in the world's second largest economy.

"When we look at the return profile, the commodity currencies are underperforming as a group," said Camilla Sutton, chief currency strategist at Scotia Capital.

"That's indicative of the confusing data we got from China because of the way the Lunar New Year fell. I think there's some hope that potentially it's not as negative as it looks on the headline ... but it's going to be hard to know that for sure until next month."

Many market watchers cautioned against reading too much into the data, given the underlying volatility caused by the Chinese holiday that saw a week-long factory shut down in January and February.

In addition, recent signs of improvement in the United States, the world's biggest economy, have dampened hopes of more monetary policy easing by the Federal Reserve. Tuesday's meeting could see the Federal Open Market Committee acknowledge the recent spate of stronger data, although traders will be on the lookout for any signals about possible additional stimulus.

The Canadian dollar ended the North American session at C$0.9927 versus the U.S. dollar, or $1.0074, down slightly from Friday's close at C$0.9909 versus the U.S. dollar, or $1.0092.

The currency has recently traded within a tight window near parity with the greenback, but has been strong recently against other currencies.

Sutton said recent M&A activity, including talk of a takeover of Viterra, Canada's largest grain holder, has helped the currency.

"Part of it could be M&A because typically any large M&A announcement has, one, the cash impact, but also the psychological impact of reminding market participants that Canada has a lot of interesting assets that can be M&A targets in the future."

Sutton expects the Canadian dollar's range to stay between C$0.9875-C$0.9975 against the U.S. dollar over the next day.

Canadian bond prices pushed up across the curve, tracking a rise in U.S. Treasuries as higher yields and the possibility of market-friendly Fed policy this week supported the bid for safe-haven government debt.

Canada's he two-year bond was up 1 Canadian cent to yield 1.171 percent, while the 10-year bond added 7 Canadian cents to yield 2.001 percent.

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