CANADA FX DEBT-C$ ekes out small gain in volatile session
* C$ stabilizes around C$1.26, hit 2-wk low overnight
* BoC Governor Carney backs away from recovery forecast
* Bonds end mostly higher (Updates to close)
By Ka Yan Ng
TORONTO, April 1 (Reuters) - The Canadian dollar CAD= eked out a small gain against the greenback on Wednesday, finishing at a level that belied its volatile range as risk appetite and technicals pulled the currency off a two-week low.
Early in the session, a slump in oil prices, weak equity markets and additional evidence of a soft U.S. jobs market weighed on the Canadian currency.
But it turned around as crude prices cut losses and equity markets marched higher, bouncing off the C$1.2625 level several times before breaking through. The Canadian dollar has tended to track both markets lately, partly as a barometer of risk.
It closed at C$1.2610 to the U.S. dollar, or 79.30 U.S. cents, up from C$1.2613, or 79.28 U.S. cents, at Tuesday's close.
During Wednesday's session it reached a high at C$1.2575 to the U.S. dollar, or 79.52 U.S. cents, after sagging to a two-week low of C$1.2718, or 78.63 U.S. cents, overnight.
"The ultimate move stronger for the Canadian dollar seems more of a technical break, but throughout the day there were some strong underlying factors supporting the move," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "It's now finding stability around the (C$1.26) figure."
The currency was already moving higher as Bank of Canada Governor Mark Carney said Canada's recession could extend through the second half of this year. [ID:nN01263139]
The central bank has promised to unveil its proposed framework for extraordinary measures to pump money into the system later this month. Several other central banks have undertaken such measures and the Bank of Canada is expected to follow suit to some degree.
But Carney stressed that the prospects of implementing non-standard measures to stimulate the economy were not cast in stone. Such moves to so-called quantitative easing -- effectively printing money to buy securities outright on the market -- have tended to hurt currencies, and lift bonds.
This week's European Central Bank interest rate decision, U.S. jobs figures and a summit of the Group of 20 leaders in London are likely to keep the Canadian dollar under pressure as the currency tends to underperform when global risk sentiment is high.
BONDS MOSTLY HIGHER
Canadian government bond prices were mixed, reflecting rising risk appetite and the prospect of poor jobs figures.
Gains were made early in the day on U.S. data that showed private U.S. employers cut more jobs than expected, raising the possibility of another huge decline in the U.S. non-farm payroll reading that will be released on Friday.
But later data showed sturdier U.S. factory activity and pending sales of existing homes, dampening the safe haven bid.
Support was pared for most maturities as stock markets turned around. The appeal of safe haven government bonds is curbed when riskier assets such as stocks are favored.
Also, the U.S. Federal Reserve announced plans to buy more government debt over the next two weeks, lending support to long-dated issues. The sentiment spilled over into Canada.
The two-year bond rose 1 Canadian cent to C$100.38 to yield 1.071 percent. The 10-year bond advanced 8 Canadian cents to C$108.61 to yield 2.770 percent. Only the five-year bond was lower, down 1 Canadian cent at C$106.16 to yield 1.747 percent.
The 30-year bond rose 25 Canadian cents to C$125.70 to yield 3.549 percent. The U.S. 30-year bond yielded 3.503 percent.
Canada bonds outperformed across the curve. The 30-year bond yield was 4.6 basis points above its U.S. counterpart, compared with 2.4 basis points on Tuesday. (Editing by Rob Wilson)
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