CANADA FX DEBT-C$ up on hopes for US auto plan, bonds ease

Wed Dec 10, 2008 10:06am EST
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* Canadian dollar climbs on U.S. auto aid hopes, oil price

* Bonds fall as investors pick stocks

TORONTO Dec 10 (Reuters) - The Canadian dollar climbed against the U.S. dollar on Wednesday morning, supported by hopes for a rescue plan for ailing U.S. automakers and by higher oil prices.

Bond prices fell as investors stepped back into stocks.

At 9:35 a.m. (1435 GMT), the Canadian dollar was at C$1.2562 to the U.S. dollar, or 79.61 U.S. cents. That is up from C$1.2646 to the U.S. dollar, or 79.08 U.S. cents, at Tuesday's close. The Canadian currency was hit on Tuesday after the Bank of Canada cut its key interest rate by 75 basis points and declared for the first time that the economy is entering a recession.

The U.S. House of Representatives could vote as early as Wednesday on a $15 billion plan to bail out and restructure U.S. automakers. [ID:nLA99919] The hopes that the plan could be finalized helped boost global stock markets and the positive sentiment filtered through to commodity markets. It also helped cool risk aversion, which has been sparking safe-haven U.S. dollar buying.

"There is a little better tone from equity markets and risk aversion playing out in response to news of a tentative loan package for the Big Three automakers. And commodity prices are a little higher," said Sal Guatieri, senior economist at BMO Capital Markets.

Oil bounced above $44 a barrel after Tuesday's slump, [ID:nSIN422139] and the recovery lent support to the Canadian dollar, which has tracked the price of oil in the past few years because of Canada's status as a major oil-exporting nation.

BONDS FALL   Continued...