January 12, 2009 / 3:48 PM / 9 years ago

CANADA FX DEBT-C$ weakens with oil on economic gloom

* C$ falls vs greenback as oil falls below $40 a barrel

* Bonds flat to higher as Toronto stocks selloff

* BoC surveys show worse credit conditions, glum sentiment

By Jennifer Kwan

TORONTO, Jan 12 (Reuters) - The Canadian dollar weakened against the U.S. currency on Monday as the price of crude fell below $40 a barrel on fears a deepening recession will curb demand.

At 10:36 a.m. (1536 GMT), the Canadian currency was at C$1.204 to the U.S. dollar, or 83.06 U.S. cents, down from C$1.1908 to the U.S. dollar, or 83.98 U.S. cents, on Friday.

Bond prices were higher as money flowed from riskier assets, with Toronto's main stock index .GSPTSE down more than 2 percent.

The Canadian currency was pressured by a slump in the price of oil CLc1, which fell below $40 a barrel on fears recession is reducing global demand. [ID:nSYD425287].

The Canadian currency also continued to weaken after a negative tone set by reports on Friday from both Canada and the United States that showed disappointing monthly employment figures that further heightened concerns about the depth of the U.S. recession.

"It's a combination of U.S. dollar strength and declining energy prices," said Carlos Leitao, chief economist at Laurentian Bank Securities, in Montreal.

Canada is a major oil producer and exporter and any movements in the price of crude often pressure the Canadian currency.

Data on Monday showed prices for new housing in Canada fell for the second straight month in November due to flat or lower prices in the western provinces where real estate markets were previously booming. Leitao said he did not expect the figures to have much impact on the market.

BONDS FLAT TO HIGHER

Canadian government bond prices were higher as Toronto equities fell and as the release of the Bank of Canada's Business Outlook Survey and Senior Loan Officer Survey showed a gloomy picture.

The bank surveys showed lending conditions in the country worsened considerably in the fourth quarter and overall business sentiment is at its worst in at least a decade. [ID:nOTW000213]

The readings could put upward pressure on bond prices throughout the day, said Mark Chandler, fixed income strategist RBC Capital Markets.

"It's the last piece of information before the Bank of Canada meets next week," Chandler said.

The Bank of Canada is due to announce its next interest rate decision on Jan. 20 with the market expecting a cut.

The two-year bond was up 6 Canadian cents at C$103.14 to yield 1.058 percent, while the 10-year bond rose 18 Canadian cents to C$111.98 to yield 2.789 percent.

The yield spread between the two-year and 10-year bond was at 182 basis points versus 171 at the previous close.

The 30-year bond was up 10 Canadian cents to yield 3.625 percent. In the United States, the 30-year treasury yielded 3.0210 percent. (Reporting by Jennifer Kwan; editing by Peter Galloway)

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