* Canadian dollar higher on auto aid hopes, oil
* Bonds mixed, longer term trend for yields to fall remain
TORONTO, Dec 10 (Reuters) - The Canadian dollar edged higher against a generally weakening U.S. dollar on Wednesday, supported by hopes for a rescue plan for ailing U.S. automakers and by higher oil prices.
Bond prices were higher on the short end as investors stepped back into stocks.
The Canadian dollar finished the largely rangebound North American session at C$1.2596 to the U.S. dollar, or 79.39 U.S. cents, up from C$1.2646 to the U.S. dollar, or 79.08 U.S. cents, at Tuesday’s close.
There was little homegrown news to drive the Canadian currency, and it was unable to revisit the 80 U.S. cent level from overnight as it moved in a range of C$1.2554 to C$1.2646 during the North American session.
But risk tolerance in the currency market was boosted by hopes that U.S. lawmakers would finalize an agreement to save the Big Three automakers and it pushed the U.S. dollar to a two-week low against the euro.
“It looks like U.S. dollar weakness is the main contributor. You can make the case that the Canadian dollar really hasn’t kept pace with some of the others out there like the euro and pound,” said Eric Lascelles, chief economics and rates strategist at TD Securities.
“Canada isn’t really a notable outlier today.”
The hopes that the auto plan could be finalized helped boost global stock markets and the positive sentiment filtered through to commodity markets.
Lascelles noted the price of oil was supportive. Oil bounced to nearly $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 exporter.
Looking ahead, the currency may find more direction from the October trade reports from the U.S. and Canada. Analysts surveyed by Reuters expect Canada’s trade balance for October to be C$3.45 billion.
Canadian bond prices were mixed with the short and long ends higher, and the belly of the curve under some pressure.
“It’s just one of these haphazard days that doesn’t have a whole lot of clear trend to it,” said Lascelles.
Longer term, the trend is for bond prices to continue to rise as the threat of global recession weighs and central banks are expected to keep cutting rates.
The two-year bond rose 3 Canadian cents to C$102.36 to yield 1.529 percent. The 10-year bond declined 10 Canadian cents to C$109.45 to yield 3.090 percent.
The yield spread between the two- and 10-year bond was at 156 basis points, up from 155 basis points at the previous close.
The 30-year bond rose 5 Canadian cents to C$121.85 to yield 3.748 percent. In the United States, the 30-year treasury yielded 3.087 percent. (Reporting by Ka Yan Ng; editing by Rob Wilson)