December 11, 2008 / 3:27 PM / in 9 years

CANADA FX DEBT-C$ climbs 2 U.S. cents, bonds gain

* Canadian dollar above 80 U.S. cents

* Bonds gain on negative tone to stocks, weak data

* Canada trade surplus narrows for second straight month

TORONTO, Dec 11 (Reuters) - The Canadian dollar jumped a hefty 2 U.S. cents on Thursday, supported by a trade figures and firmer oil prices.

Bond prices were higher as stock markets took a weaker tone and a raft of data underscored the global economic downturn.

At 10:05 a.m. (1505 GMT), the Canadian dollar was at C$1.2286 to the U.S. dollar, 81.39 U.S. cents, up from C$1.2596 to the U.S. dollar, or 79.39 U.S. cents, at Wednesday’s close.

The Canadian dollar was already firming before the release of the country’s trade figures, which showed the surplus narrowed in October to C$3.78 billion from C$4.25 billion in September, the second straight month of contraction and not as bad as feared. [ID:nN11254064]

The Canadian dollar also benefited from the rising oil prices on Thursday, up about 7 percent and headed to $46 a barrel. The currency has generally moved with the price of oil in the past few years because of Canada’s status as a major exporter.

“It looks like Canada lagged some of the gains overnight and we did some catch-up early in the morning,” David Watt, senior currency strategist at RBC Capital Markets, said.

The Canadian dollar rose on Wednesday but gains had not kept pace with other currencies such as the euro or pound against the U.S. dollar, which lost some of its luster as a safe-haven currency.

“In general, the news over the past few days have been more (Canadian-dollar) positive. Oil prices are stabilizing, equity markets have stabilized to an extent and again that U.S. dollar story is lingering in the background,” Watt said.

BONDS RISE

Canadian bond prices were higher across the curve, reflecting the negative tone to stock markets over the prospects of a rescue package for U.S. automakers.

Canadian bonds also tracked U.S. treasuries, which were supported by an unexpectedly large jump in U.S. jobless claims and a swelling U.S. trade deficit. [ID:nN11378229]

Longer term, the trend is for bond prices to keep rising 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$102.39 to yield 1.509 percent. The 10-year bond rose 20 Canadian cents to C$109.65 to yield 3.067 percent.

The yield spread between the two- and 10-year bond was at 158 basis points, up from 156 basis points at the previous close.

The 30-year bond rose 40 Canadian cents to C$122.10 to yield 3.733 percent. In the United States, the 30-year treasury yielded 3.082 percent. (Reporting by Ka Yan Ng; Editing by Jeffrey Jones)

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