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* Canadian dollar at 97.80 U.S. cents
* Bond prices unwind steeply
* European Union and IMF agree to massive rescue plan
* Bank of Canada to reestablish Fed swap agreement
By Ka Yan Ng
TORONTO, May 10 (Reuters) - The Canadian dollar jumped more than 2 percent against the U.S. dollar on Monday as market confidence was renewed after policymakers agreed to an emergency aid package to stabilize European sovereign debt issues.
The currency CAD=D4 steadily climbed, hitting a session high of C$1.0211 to the U.S. dollar, or 97.93 U.S. cents, as the North American session got underway, joining other riskier assets that were on the rise.
European central banks began buying euro zone government bonds under a $1 trillion global emergency rescue package, sending world stocks nearly 3 percent higher, the euro up 2 percent on the U.S. dollar and narrowing yields on corporate and peripheral euro zone debt. U.S. stock futures also pointed to a strong start. [MKTS/GLOB] [nTOPNOW2]
"Canada is a beneficiary of a bid to all risk markets. The plan is audacious in a go-big or go-home kind of way," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"So short-term, clearly the cause and effect has created a bid for a number of asset classes, but longer term it remains to be seen whether this is sustainable."
The Bank of Canada said it would reestablish a US$30 billion currency swap agreement with the U.S. Federal Reserve in response to liquidity pressures in European markets. [ID:nN0949279]
The facility was part of a broader move by the Bank of England, the European Central Bank, the Fed and the Swiss National Bank to prevent the spread of funding strains to other countries, the central bank said in a statement.
At 7:45 a.m. (1145 GMT), the Canadian dollar was at C$1.0225 to the U.S. dollar, or 97.80 U.S. cents, up sharply from C$1.0438 to the U.S. dollar, or 95.80 U.S. cents, at Friday's close.
The aid package helped the Canadian dollar recover part of its 2.8 percent slide from the week before, the steepest weekly drop since October.
Housing starts for April was the only set of of Canadian data on tap, due at 8:15 a.m. (1215 GMT), and is expected to show a rise to 205,000 units of new home construction from 197,300 in March. ECONCA
Canadian government bond prices sagged across the curve as safe haven assets fell out of favor in the wake of the aid deal.
The two-year government bond CA2YT=RR dropped 27 Canadian cents to C$99.10 to yield 1.949 percent, while the 10-year bond CA10YT=RR shed 80 Canadian cents to C$99.15 to yield 3.602 percent.
(Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)