CANADA FX DEBT-C$ stumbles as U.S. bank plan disappoints

Tue Feb 10, 2009 11:57am EST
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* C$ retreats along with stocks on risk aversion

* Bonds mixed with safe-haven bid at long end (Recasts)

By Frank Pingue

TORONTO, Feb 10 (Reuters) - The Canadian dollar was dragged lower against the greenback late on Tuesday morning as risk appetite diminished after the U.S. government delivered a bank bailout plan that may not be enough to shore up the financial sector.

The Canadian currency bounced around in a wide range as the U.S. plan was released before settling at lower levels as less desire for risky assets saw stocks slide as traders flocked to the U.S. dollar, considered a safe haven play.

The U.S. government said it will cleanse up to $500 billion in spoiled assets from banks' books and support $1 trillion in new lending. [ID:nTRT000362] But the massive plan failed to reinvigorate North American equity markets.

"Equities are coming off and that's contributing to a risk aversion tone, which is ultimately going to filter into bids for dollar/Canada," said Jack Spitz, managing director of foreign exchange at National Bank of Canada.

"From an immediate perspective it's negative Canada, but it's really not a negative Canada scenario as much as it's a negative risk scenario."

Canada's dollar rallied as high as C$1.2182, or 82.09 U.S. cents, moments after the plan was unveiled, but then fell as low as C$1.2373, or 80.82 U.S. cents.   Continued...