CANADA FX DEBT-C$ tumbles as US bank plan disappoints

Tue Feb 10, 2009 4:51pm EST
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* C$ closes near session low of 80.04 U.S. cents

* U.S. bank bailout plan sparks C$ selloff

* Bonds end higher, boosted by safe haven buying

* Bank of Canada defends forecasts, sees rate cut room (Recasts with comments and closing levels)

By Frank Pingue

TORONTO, Feb 10 (Reuters) - Canada's currency fell 2.4 percent on Tuesday as demand for risky assets diminished after the release of a U.S. government bank bailout plan that was not considered enough to shore up the financial sector.

The bailout plan, which overshadowed testimony by Bank of Canada Governor Mark Carney, rattled North American equities and the Canadian dollar, with investors rushing into the U.S. dollar and Japanese yen.

The low-yielding U.S. dollar and yen are typically viewed as safe-haven currencies. When stocks drop and the risk barometer climbs, investors often repatriate funds and close out risky trades funded by these two currencies.

The selloff came immediately after U.S. Treasury Secretary Timothy Geithner unveiled a plan that was considered by many to be too vague and not enough to contain a deepening recession. [ID:nN102559]   Continued...