CANADA FX DEBT-C$ falls on U.S. Fed statement; ECB eyed
* C$ ends at C$1.0052 vs US$, or 99.48 U.S. cents * Currency touches session low after Fed disappoints * Earlier, C$ touches C$1.0003 or 99.97 U.S. cents * Bond prices slip across the curve By Jennifer Kwan TORONTO, Aug 1 (Reuters) - The Canadian dollar sank against its U.S. counterpart on Wednesday after the U.S. Federal Reserve said the economy was weaker but left policy on hold, and investors shifted their focus on the European Central Bank. The U.S. Fed stopped short of offering new monetary stimulus even as it signaled further bond buys could be in store, sending riskier assets like stocks and some metals prices like copper lower. "The results will disappoint some in the equity markets that had pinned their hopes on new measures today. Bearish for equities and other risk assets as a result," said Avery Shenfeld, chief economist at CIBC World Markets. The Fed's policy decision comes a day before a key meeting of the European Central Bank. ECB President Mario Draghi heightened speculation of further bank purchases of Italian and Spanish bonds when he said last week that he would do "whatever it takes to preserve the euro." Still, the risk of disappointment is fairly high and the euro could sell off if the ECB does not deliver. "There's obviously still a great deal of hope remaining for the ECB to fulfill market expectations. I don't see that happening," said John Curran, senior vice president at CanadianForex. "There's no magic bullet." The Canadian dollar ended at C$1.0052 against the greenback, or 99.48 U.S. cents, after falling as low as C$1.0057. On Tuesday, the currency finished at C$1.0029 against the greenback, or 99.71 U.S. cents. Investors were largely unmoved on Wednesday by economic data that showed economies around the world showed signs of slowing. In Canada, RBC Purchasing Managers' Index posted its first decline in six months. South of the border, data showed the U.S. private sector added 163,000 jobs in July, topping economists' expectations of 120,000 new jobs. The report from payrolls processor ADP came two days ahead of Friday's more important government monthly, non-farm payrolls report. Also on Wednesday, data pointed to a sluggish global manufacturing picture. U.S. and euro zone factory activity struggled again in July while Chinese manufacturing fell to an eight-month low. BONDS LOWER Economists at Scotiabank revised their outlook for the next Bank of Canada move on interest rates. They believe the central bank will be on hold until early 2014 compared with their earlier forecast of a rate hike in the third quarter of 2012. "We think the Canadian economy will remain soft enough such that it underperforms the speed limit to growth and builds more spare capacity over time," Derek Holt and Dov Zigler wrote. "That should remain broadly disinflationary in support of a potentially very long pause on policy rates." Most Canadian primary dealers expect the Bank of Canada to hold interest rates steady until mid-2013 or later. Canadian bond prices were flat to lower across the curve with the two-year bond off by 4 Canadian cents to yield 1.096 percent, and the benchmark 10-year bond was down 33 Canadian cents to yield 1.711 percent. Separately, the Bank of Canada's auction of two-year bonds produced an average yield of 1.147.
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