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TORONTO (Reuters) - The dollar shot to its highest level in nearly a week versus the U.S. dollar on Wednesday after domestic data showed housing starts topped estimates, which helped lift the currency from its overnight low.
Domestic bond prices were pinned lower across the curve and extended losses from Tuesday when Federal Reserve Chairman Ben Bernanke said the bank might extend emergency lending for big Wall St. investment banks.
At 9:35 a.m., the Canadian unit was at C$1.0107 to the U.S. dollar, or 98.94 U.S. cents, up from C$1.0191 to the U.S. dollar, or 98.13 U.S. cents, at Tuesday's close.
Data that showed housing starts fell 4.3 percent in June but still topped the median estimate of analysts while the prior month was upwardly revised, was driving the rally.
"Maybe it's good news that the Canadian housing market isn't keeling over given what's happening in the U.S.," said Eric Lascelles, chief economics and rates strategist at TD Securities.
"But I'm a little bit perplexed at the market reaction to this number because it is a second-tier indicator and didn't have much in the way of shocks."
A rise in oil prices after sliding from last week's record high near $146 a barrel helped lift the Canadian currency from its overnight low.
And with no other domestic data due out on Wednesday, the next item of interest for the Canadian currency could be the weekly U.S. oil inventory data, due at 10:30 a.m. It is expected to show a 1.8 million-barrel decline in crude stocks.
But moves by the Canadian dollar are likely to be limited ahead of the key report of the week -- domestic jobs data for June -- due out on Friday.
The June employment figures, the last piece of data the Bank of Canada will consider ahead of its next scheduled rate decision on July 15, are expected to show the economy created 10,000 jobs in June with an unemployment rate of 6.1 percent.
While the bank is expected to leave its key overnight rate steady at 3.00 percent, plenty of attention will be put on the accompanying statement to see if the emphasis will remain on inflation or if the characterization will be more balanced.
Bond prices remained lower alongside U.S. treasuries, which were still reeling from Tuesday's comments from Bernanke, who outlined measures designed to shore up mortgage lending and help markets operate more smoothly.
"It's mostly driven off of what we're seeing in the U.S. and a continuation from yesterday in terms of better improvements in the financial sectors," said Mark Chandler, fixed income strategist at RBC Capital Markets. "So, just sort of the modestly positive mortgage news after Bernanke."
Also weighing on bond prices were dealers who unloaded the secure assets with hopes of snapping them back up at a lower price at Wednesday's Bank of Canada auction.
The bank will auction C$2.5 billion of government of Canada bonds with a coupon of 4.25 percent, due June 1, 2018.
The overnight Canadian Libor rate was 3.0416 percent, down from 3.0500 on Tuesday.
Tuesday's CORRA rate was 3.0331 percent, up from 2.9936 percent on Monday. The Bank of Canada publishes the previous day's rate around 9 a.m. daily.
The two-year bond dipped 4 Canadian cents to C$100.96 to yield 3.223 percent. The 10-year bond was down 2 Canadian cents at C$102.23 to yield 3.703 percent.
The yield spread between the two-year and 10-year bond was 47.7 basis points, down from 49.5 at the previous close.
The 30-year bond fell 5 Canadian cents to C$116.10 for a yield of 4.051 percent. In the United States, the 30-year treasury yielded 4.462 percent.
The three-month when-issued T-bill yielded 2.47 percent, down from 2.48 percent at the previous close.
Editing by Scott Anderson