CANADA FX DEBT-C$ rises with sentiment, but turbulence seen
* C$ rises to 94.96 U.S. cents from 94.32 U.S. cents
* Hints at diversification away from USD, euro
* Canadian bonds slightly lower
By John McCrank
TORONTO, June 8 (Reuters) - The Canadian dollar rose against the greenback on Tuesday as the general mood in financial markets improved and big players appeared to be diversifying away from the U.S. dollar and euro.
U.S. stock futures were pointing toward a higher open after falling hard at the end of the previous session to finish at their lowest close in seven months on concerns about the global economic recovery.
U.S. Federal Reserve Chairman Ben Bernanke late on Monday said that European leaders would stand by the euro and had the means to meet obligations of heavily indebted member countries. [ID:nLDE65705B]
That may have soothed investors' nerves some, but volatility in the equities markets will likely remain, as it will with the Canadian dollar, said Doug Porter, deputy chief economist at BMO Capital markets.
"Just because the currency starts the day strong, it doesn't mean it's going to finish the day strong."
"(The currency) almost seems to have been completely beholden to how global financial markets fare, rather than having any lasting effect on it from Canadian domestic data in recent weeks."
A strong jobs reports in Canada on Friday had no effect on the currency, as the data was undercut by weak employment numbers from the United States, which is far and away Canada's biggest trading partner.
At 8:40 a.m. (1240 GMT), the Canadian dollar CAD=D4 was at C$1.0530 to the U.S. dollar, or 94.96 U.S. cents, up from a close of C$1.0602 to the U.S. dollar, or 94.32 U.S. cents at the end of Monday's North American close.
Camila Sutton, a currency strategist at Scotia Capital, said there may be more going on than just improved, if shaky, market sentiment.
"We had a miserable close in equities yesterday, so I don't think we are in an environment that would be beneficial for commodity-based currencies," she said.
"It hints at a pattern of diversification flows."
She said it appeared that central banks and big institutional players may be buying the Canadian dollar, along with other commodity-based currencies to diversify away from the euro and greenback.
On the domestic data front, Canadian housing starts -- rarely a market mover -- fell in May to a seasonally adjusted annualized rate of 189,100 units from a revised 201,800 in April. That was below the consensus expectations of analysts who had called for 200,000 starts May. [ID:nTOR007555]
Looking ahead, there are no major Canadian data releases this week. In the United States, market players will be watching the U.S. retail sales numbers on Friday for more insight into the health of the world's No. 1 economy.
CANADA BOND PRICES SAG
Canadian bond prices were slightly weaker, mirroring U.S. Treasuries, as investors cautiously tip-toed into more lucrative, but less stable, equities.
The two-year Canadian government bond CA2YT=RR was down 6 Canadian cents to yield 1.655 percent, while the 10-year bond CA10YT=RR fell 10 Canadian cents to yield 3.304 percent. (Reporting by John McCrank; Editing by Theodore d'Afflisio)
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