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TORONTO (Reuters) - The Canadian dollar closed lower against the U.S. dollar on Monday as data showing an unexpected slide in domestic building permits more than offset the positive backdrop of higher commodity prices.
Domestic bond prices were unable to overcome early losses and ended lower across the curve, even though the rally in equity markets, which sapped the appetite for government debt, faded as the session wore on.
The Canadian dollar closed at C$1.0133 to the U.S. dollar, or 98.69 U.S. cents, down from C$1.0093 to the U.S. dollar, or 99.07 U.S. cents, at Friday's close.
Economic data that showed the value of Canadian building permits dropped 1 percent in February weighed on the Canadian dollar as the market was looking for a gain of 1 percent.
While not a top-tier report, the data followed Friday's jobs figures, which showed the economy posted a moderate increase in jobs for March after two red-hot months of growth, keeping economic concerns at the forefront.
"I'm not going to put a lot of weight on the building permits number but it is one of those indicators that suggests that the Canadian economy is beginning to cool off," said David Watt, senior currency strategist at RBC Capital Markets.
"The headwinds out of the U.S. and the concerns about the Canadian economy ... gave room for U.S. dollar bulls and gave a bearish tone to the Canadian dollar."
For the commodity-linked Canadian dollar, which closed a sliver above its session low, its latest slide came despite a $3 jump in oil prices to above $109 a barrel and a surge in gold prices to a one-week high.
Canada is a major exporter of key commodities like oil and gold, and its currency has surged about 60 percent since 2002 due in large part to stronger commodity prices.
The next piece of Canadian economic data due out will be the March housing starts report on Tuesday.
Bond prices started the session lower given the positive tone on equity markets, but when stocks backed off their session highs, bond prices were unable to rebound.
Toronto's main stock market index shot up 229 points at one point but closed with a gain of 76 points, while the Dow Jones industrial average ended flat, well off its session high.
"You would've thought the bond market would have retraced most of its losses today now that stock markets came back," said Sal Guatieri, senior economist at BMO Capital Markets.
"There's just a general sense that maybe the worst is behind us in credit markets and for the U.S. economy, and that seemed to fuel most of the equity market's earlier rally, and that was weighing on bonds."
The two-year bond fell 8 Canadian cents to C$101.98 to yield 2.792 percent. The 10-year bond dropped 53 Canadian cents to C$103.10 to yield 3.598 percent.
The yield spread between the two- and 10-year bonds was 80.6 basis points, up from 77.0 at the previous close.
The 30-year bond slid C$1.02 to C$116.05 to yield 4.056 percent. In the United States, the 30-year treasury yielded 4.362 percent.
The three-month when-issued T-bill yielded 2.16 percent, up from 2.06 percent at the previous close.
Editing by Rob Wilson