CANADA FX DEBT-C$ weaker after touching 2009 high; oil weighs

Tue May 5, 2009 4:36pm EDT
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 * C$ finishes at 85.03 U.S. cents
 * Currency retreats as oil price weakens
 * Bond prices mostly stronger
 (Adds closing C$ level, bond market details, quotes)
 By Jennifer Kwan
 TORONTO, May 5 (Reuters) - The Canadian dollar weakened
against the greenback on Tuesday after reaching its highest
level in nearly six months, pressured by a similar reversal in
the price of oil and soft equity markets.
 The currency has recently traded alongside equity and
commodity markets, which have risen as investors bought riskier
assets on optimism the global recession is easing.
 But North American equity markets were little changed in
either direction on Tuesday, as some investors took profits
after recent gains. And crude prices CLc1 fell after hitting
a 2009 high as bulging oil inventories and falling energy
demand outweighed fragile hopes for an economic recovery.
 "It's a bit of a pause after a sharp move but sentiment is
still in the market that dollar/Cad should head lower and the
Canadian dollar should still head higher," said David Watt,
senior currency strategist RBC Capital Markets.
 The Canadian unit finished at C$1.1761 to the U.S. dollar,
or 85.03 U.S. cents, down from C$1.1735 to the U.S. dollar, or
85.22 U.S. cents, at Monday's close.
 Earlier in the session, the currency hit C$1.1677 to the
U.S. dollar, or 85.64 U.S. cents, its highest since Nov. 10.
 The U.S. dollar rebounded ahead of Thursday's European
Central Bank meeting and results of stress tests on U.S. banks,
which may show about half of the 19 biggest banks under review
need to raise more capital. [ID:nN04395186]
 With no major Canadian economic data out on Tuesday,
markets are watching for employment data, the Ivey Purchasing
Managers' Index, and housing reports due later this week. As
well, U.S. employment figures are due on Friday.
 Canadian bond prices were mostly firmer. Bonds had been
flat to lower in recent days as equity markets rose to their
best levels in nearly six months.
 Sheldon Dong, a fixed income analyst at TD Waterhouse
Private Investment, said the market was largely defensive ahead
of the Canadian and U.S. jobs data, as well as the bank stress
test results.
 The benchmark two-year Canadian government bond was bid at
C$100.48 to yield 1.015 percent, while the 10-year bond rose 37
Canadian cents to C$106 to yield 3.06 percent.
 The 30-year bond rose 45 Canadian cents to C$119.95 to
yield 3.833 percent. In the United States, the 30-year treasury
yielded 4.06 percent.
 Canadian bonds outperformed their U.S. counterparts. The
10-year bond yield was 11.7 basis points below the U.S. 10-year
yield, compared with 6.2 basis points below on Monday.
 (Additional reporting Ka Yan Ng and Jeffrey Hodgson; editing
by Rob Wilson)