CANADA FX DEBT-C$ catches safety bid as Europe fears mount
* C$ ends at C$0.9910 vs US$, or $1.0091 * Euro zone PMI, politics hit global markets * Bank of Canada's more hawkish tone still supports * Bonds climb across curve By Jon Cook TORONTO, April 23 (Reuters) - The Canadian dollar firmed slightly against its U.S. counterpart on Monday as European economic and political uncertainty raised concerns about an escalation of the euro zone debt crisis, increasing the safe haven appeal of North American currencies. Global stocks and the euro slumped as a Dutch political impasse and disappointing euro zone data revived fears the region's debt crisis could keep much of Europe mired in recession through the year. Dutch Prime Minister Mark Rutte tendered his government's resignation on Monday in a crisis over budget cuts. The political turmoil in the Netherlands - traditionally one of the euro zone's most stable members - added to uncertainties after Socialist challenger Francois Hollande led President Nicolas Sarkozy in the first round of French presidential elections. The yield spread between triple-A rated Dutch bonds and German paper moved out to its widest in three years, while the Italian debt yield spread also increased. By comparison Canada's currency, supported by the country's triple-A debt rating and stable political situation, remained very attractive, said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets. "We're looking like one of the safer places to be," Mikolich said. "Canada is benefiting because we've had such positive news and (Bank of Canada Governor Mark) Carney on the potential for the rate hikes at some point, so we're a little bit of an aberration from any kind of flight to safety right now." The Canadian dollar firmed to C$0.9910 against the greenback, or $1.0091, from Friday's finish at C$0.9926 against the greenback, or $1.0075. Last week the Bank of Canada kept its key lending rate on hold for the 19th straight month but used more hawkish-than-expected language, explicitly warning it may need to start raising interest rates given reduced slack in the economy. Carney will testify before a Canadian parliamentary committee on Tuesday, with many market watchers expecting him to reiterate the central bank's more positive outlook for the economy. Canadian wholesale trade baffled expectations for a fall and climbed 1.6 percent in February from the month before, Statistics Canada said on Monday, signaling a strengthening in gross domestic product data next week. The Canadian outlook contrasts with Europe, where data showed German manufacturing unexpectedly shrank at its fastest pace in nearly three years in April, accompanying a broader euro zone contraction in manufacturing. The developments overshadowed last week's Group of 20 gathering in which leading world economies pledged $430 billion in new funding for the International Monetary Fund, more than doubling its lending power in a bid to protect the global economy from the euro-zone debt crisis. Canadian government bond prices were mostly higher with the two-year bond up 4 Canadian cents to yield 1.332 percent. The benchmark 10-year bond climbed 30 Canadian cents to yield 2.028 percent.
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