TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Tuesday, helped by an announcement by billionaire investor Warren Buffett that Berkshire Hathaway had offered to assume the liabilities of the monoline bond insurers, injecting some calm into frazzled financial markets.
Domestic bond prices, with no major domestic data to influence direction, fell on Buffett's announcement.
At 9:26 a.m. EST, the Canadian dollar was at US$1.0044, making a greenback worth 99.56 Canadian cents, up from 99.85 U.S. cents, valuing a U.S. dollar at C$1.0015, at Monday's close.
"This could be seen as a very positive development," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
"If we see another strong rally from this point forward, I think it would favor the Canadian dollar."
Despite several recent pieces of domestic data that came in above market expectations, the outlook for the Canadian economy has been hurt by the prospects for growth south of the border.
Exports contribute around 40 percent to the Canadian economy and the United States takes in around three-quarters of Canadian exports.
The main concern in financial markets as of late has been the health of U.S. bond insurers, which guarantee over $2.4 trillion of debt.
The so-called monoline insurers have been struggling to hold on to their triple-A ratings because they have suffered losses from backing mortgage backed securities that have plunged in value.
Buffett told CNBC television his plan would cover $800 billion in municipal bonds.
Canadian bond prices fell as Buffett's announcement was seen soothing market concerns.
"I feel confident that one way or another, we will see bond insurers bailed out, whether it is private sector acquisitions, or whether it will be government bailouts," said Eric Lacselles, chief economics and rates specialist at TD Securities.
"You have two choices, one is bail them out for $15 billion and all is well. The other is let them fail and the banking sector loses $150 billion."
The overnight Canadian Libor rate was at 4.0467 percent, down from 4.0500 percent on Monday.
Monday's CORRA rate was 3.988 percent, down from 4.0032 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond fell 15 Canadian cents to C$101.94 to yield 3.125 percent. The 10-year bond slid 52 Canadian cents to C$101.08 to yield 3.859 percent.
The yield spread between the two- and 10-year bond was 73.2 basis points, down from 73.6 at the previous close.
The 30-year bond plunged C$1.02 to C$113.03 to yield 4.220 percent. In the United States, the 30-year Treasury yielded 4.469 percent.
The three-month when-issued T-bill yielded 3.25 percent, unchanged from the previous close.
Editing by Renato Andrade