CANADA FX DEBT-C$ rises for fourth session, helped by stocks
* Closes at C$1.0198 to the US$, or 98.06 U.S. cents
* At 8-year high against euro
* Spain's tough austerity moves boost global risk assets
* Weak oil price stalls further gains in C$
* Bond prices weakens; long end outperforms U.S. (Adds analyst comments, updates to close)
By Jennifer Kwan and Jeffrey Hodgson
TORONTO, May 12 (Reuters) - Canada's dollar climbed for a fourth straight session against its U.S. counterpart on Wednesday, boosted by rallying equities and easing fears that sovereign debt problems could spread in the euro zone.
The currency CAD=D4 touched a high of C$1.0154 to the U.S. dollar, or 98.48 U.S. cents, as global shares rose after Spain outlined measures to cut its deficit, allaying fears about Greek debt crisis contagion. [MKTS/GLOB]
But the currency pulled back from its peak level as oil prices dropped after government data showed rising U.S. inventories. [O/R]
"Risk appetite returning overnight (is) helping the Canadian dollar. However, we struggled to follow through with the initial strength," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
"Part of the reason being that the oil backdrop is not as supportive as the overall risk backdrop."
The currency finished at C$1.0198 to the U.S. dollar, or 98.06 U.S. cents, up from C$1.0218 to the U.S. dollar, or 97.87 U.S. cents, at Tuesday's close. Wednesday marked the currency's fourth straight close higher against the greenback.
The Canadian dollar also made further gains against the euro, rising as high as C$1.2849, or 77.83 euro cents, its strongest level since July 2001.
The currency has gained 2.4 percent so far this week as investors focused on the country's relatively healthy fundamentals, including its fiscal position, and strong data such as last week's solid domestic jobs report. [ID:nN0793308]
"The Canadian dollar is one of the best performing currencies this year, while the euro is the weakest major currency," said Sal Guatieri, senior economist at BMO Capital Markets.
"Given the fiscal and monetary policy backdrop, clearly Canada's fiscal and monetary house is in better shape than Europe's."
Analysts said the focus on global risk appetite overshadowed economic data that showed Canada's trade surplus fell sharply and unexpectedly in March due to a drop in prices for energy exports, while new home prices continued their steady rise. [ID:nN12181372]
RBC's Strauss said oil's weak performance on Wednesday kept the currency locked in range of C$1.0150-C$1.02 to the U.S. dollar.
"There's still downward momentum. My guess is we'll first see a test of the support line rather than the resistance line so testing C$1.0122 rather than C$1.0289," said Strauss.
"However, the move going forward will depend very much on global risk sentiment."
BOND PRICES LOWER
Canadian government bond prices were lower across the curve as European debt worries eased, prompting investors to seek riskier assets such as stocks.
"It's following along with the U.S. Treasury market with investors just more comfortable buying riskier assets," said BMO's Guatieri.
The two-year government bond CA2YT=RR fell 12.5 Canadian cents to yield 2.02 percent, while the 10-year bond CA10YT=RR fell 15 Canadian cents to yield 3.602 percent.
Canadian government bonds outperformed U.S. issues at the long end, with the Canadian 10-year yield 2.8 basis points above its U.S. counterpart, compared with 5.3 basis points on Tuesday.
Canada's C$3 billion auction of three-year bonds on Wednesday met with healthy appetite, buoyed by the country's strong fundamentals and easing worries over European sovereign debt. [ID:nN12203506]
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