UPDATE 1-Canadian dollar rises as BoC keeps rates steady
* Canadian dollar recoups losses from overnight session
* Bank of Canada unexpectedly leaves key rate steady
* Bond prices extend recent losses, down across curve
By Frank Pingue
TORONTO, June 10 (Reuters) - The Canadian dollar was higher versus the U.S. dollar on Tuesday as a surprise decision by the Bank of Canada to hold its key interest rate steady allowed the currency to storm back from its lowest level since April 1.
Canadian bond prices were slapped lower across the curve as the Bank of Canada signaled an end to its rate-cutting cycle, which added to other upbeat central bank comments over the past week that have weighed on bonds.
At 10:20 a.m. (1420 GMT), the Canadian unit was at C$1.0209 to the U.S. dollar, or 97.95 U.S. cents, up from C$1.0216 to the U.S. dollar, or 97.89 U.S. cents, at Monday's close.
The currency, which dropped as low as C$1.0324 to the U.S. dollar, or 96.86 U.S. cents, overnight, shot to C$1.0196 to the U.S. dollar, or 98.08 U.S. cents, immediately after the Bank of Canada rate announcement.
The Bank of Canada left its overnight rate steady at 3.00 percent. That was a surprise. In a recent Reuters poll, all 12 of Canada's primary dealers had forecast a cut of 25 basis points.
"Even with the very dramatic move we had after the Bank of Canada announcement, we're really not far away from where we were yesterday afternoon. We basically just reversed the early morning selloff," said Doug Porter, deputy chief economist at BMO Capital Markets.
"So it may have turned the tide for the Canadian dollar at least for now, but whether this is a real change in direction remains to be seen."
In its statement, the Bank of Canada said there is now a greater risk that inflation will be higher than it projected in April due to stronger-than-expected global growth and commodity prices.
The Canadian dollar has been wedged in a tight range around parity with its U.S. counterpart since November.
BOND PRICES FALL
Canadian bond prices were pinned lower after the Bank of Canada rate announcement and extended losses from last week when comments from U.S. Federal Reserve Chairman Ben Bernanke suggested the Fed could raise rates to support the greenback and staunch any inflation pressure.
The remarks from Bernanke were followed by comments from the European Central Bank, which said interest rates in the euro zone could rise as soon as next week.
"Bonds were getting hammered in any event even before today's decision but this was just like a massive hammer blow on top of Bernanke's hawkish talk and all the other factors that have been weighing on the market in any event," Porter said.
The overnight Canadian LIBOR rate LIBOR01 was at 2.8467 percent, down from 2.9867 percent on Monday.
Monday's CORRA rate CORRA= was 3.0008 percent, down from 3.0018 on Friday. The Bank of Canada publishes the previous session's rate around 9 a.m. daily.
The two-year bond was down 61 Canadian cents at C$100.67 to yield 3.395 percent. The 10-year bond dropped 96 Canadian cents to C$101.24 to yield 3.835 percent.
The yield spread between the two-year and 10-year bond was 44.0 basis points, down from 63.2 at the previous close.
The 30-year bond fell 76 Canadian cents to C$114.07 for a yield of 4.160 percent. In the United States, the 30-year Treasury yielded 4.655 percent.
The three-month when-issued T-bill yielded 2.85 percent, up from 2.56 percent at the previous close.
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