CANADA FX DEBT-C$ near 2 1/2-year high on upbeat sentiment
* C$ rises as high as C$0.9917 or $1.0084
* Bonds prices soften across curve
By Claire Sibonney
TORONTO, Jan 4 (Reuters) - The Canadian dollar traded near its strongest level since May 2008 on Tuesday, holding above parity with its U.S. counterpart as investors kicked off the new year with optimism about the world economy.
U.S., Chinese and European PMI manufacturing data on Monday boosted risk sentiment across financial markets along with the so-called "January effect" that occurs as many fund managers dispense with the need to settle end-of-year balances. [MKTS/GLOB]
"It's really dollar weakness. The dollar has drifted down over the holiday period and it's continued to drift down as we finally come to a day where all the major markets are open," said Adam Cole, global head of global FX strategy at RBC Capital Markets in London.
"It is a moderately risk positive day ... but I wouldn't read too much into markets that are only just coming back to life after a prolonged period of liquidity starvation with so much on the agenda later in the week."
North American employment data on Friday will provide the main focus, with improvements expected on both sides of the border. U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony that day will also be closely watched. [ID:nN31145126] [ID:nN31145126]
At 8:05 a.m. (1305 GMT), the currency stood at C$0.9927 to the greenback, or $1.0074, up from Friday's finish where it ended the year at C$0.9946 to the U.S. dollar, or $1.0054.
Earlier on Tuesday the currency touched as high as C$0.9917 to the U.S. dollar, or $1.0084.
Canadian trading desks were largely closed for the New Year holiday on Monday when the currency firmed as high as C$0.9889, or C$1.011. This represents a new technical support level for the U.S. currency against the Canadian dollar, said Cole.
The Canadian dollar's outperformance was notable against other commodity currencies such as the Australian dollar, Cole added.
"That's largely as a result of the other commodity currencies underperforming," he said.
"The Aussie is being hit particularly by the impact of the floods and what that might mean for commodity production and overall growth in the early part of this year."
Canadian bond prices were slightly weaker, tracking U.S. Treasuries as investors sold safe-haven government debt in favor of stocks and other riskier assets. [US/]
The two-year bond CA2YT=RR was down 3 Canadian cents to yield 1.682 percent, while the 10-year bond CA10YT=RR dropped 15 percent to yield 3.135 percent. (Reporting by Claire Sibonney; editing by Jeffrey Hodgson)
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