CANADA FX DEBT-C$ closes lower but off 1-week low

Mon Sep 14, 2009 4:42pm EDT
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 * C$ ends at 92.29 U.S. cents
 * Bonds down but most outperform U.S. Treasuries
 * Election risks add "flavor" to currency weakness
 (Updates to close)
 TORONTO, Sept 14 (Reuters) - Canada's dollar finished lower
against the U.S. currency on Monday but up from the one-week
low it hit in early dealings, rising with equity markets as
they overcame early investor concern about a trade spat between
the U.S. and China.
 U.S. President Barack Obama announced safeguard duties on
tire imports from China late last week and China later
responded by signaling anti-dumping investigations of U.S.
chicken products and vehicles. [ID:nSP459289]
 Worries that U.S.-China trade tensions may stall the global
economic recovery dragged on the currency market overnight and
subsequently knocked the Canadian currency as low as C$1.0927
to the U.S. dollar, or 91.52 U.S. cents, its lowest level since
Sept. 4.
 But the currency cut its losses as the Toronto stock market
.GSPTSE found a firmer footing after falling almost 80 points
at the open and closed the day at an 11-month high.
 "If anything, all the excitement was last night," said
George Davis, chief technical analyst at RBC Capital Markets.
"When we got in today, the markets stabilized fairly early, in
general with stock markets failing to selloff after worries
over those protectionist measures."
 Although the Canadian dollar was able to bounce back as
high as C$1.0827 to the U.S. dollar, or 92.36 U.S. cents, it
never came close to rising above Friday's close at C$1.0786 to
the U.S. dollar, or 92.71 U.S. cents.
 The Canadian dollar CAD=D3 closed lower at C$1.0835 to
the U.S. dollar, or 92.29 U.S. cents.
 The Canadian dollar seemed to have an "extra flavor" to its
weakness early on Monday, said Eric Lascelles, chief economics
and rates strategist at TD Securities.
 "The Canadian political scene is back in play. House of
Commons sits and there is much talk about election risks,"
Lascelles said.
 But prospects for an early Canadian election appeared to
fade on Monday after the opposition New Democrats welcomed
government proposals for new jobless benefits as "a good start"
and "a very serious proposition". [ID:nN14502973]
 Recent opinion polls give the Conservatives, which have a
minority government, a 3 to 5 percentage point lead over the
Liberals, the biggest opposition party. That would still leave
the Conservatives short of what it would take to form a
majority government after the next election. Canada has had
minority governments since 2004.
 Canadian bond prices were lower across the curve, but
outperformed their U.S. counterparts, with few catalysts to
drive the market.
 The decline extended a mixed session overnight, which did
not have a "whole lot of tone," Lascelles said.
 Data on Monday showed Canadian industries ran at 67.4
percent of capacity in the second quarter, the lowest rate on
record as the recession forced every sector except food
manufacturing to curb output. [ID:nN14]
 The two-year bond CA2YT=RR fell 5 Canadian cents to
C$99.56 to yield 1.231 percent, while the 10-year bond
CA10YT=RR fell 43 Canadian cents to C$103.12 to yield 3.370
percent. The 30-year bond CA30YT=RR lost 85 Canadian cents to
C$118.40 to yield 3.906 percent.
 Most Canadian bonds outperformed their U.S. counterparts,
except for the two-year issue. The Canadian 10-year bond yield
widened slightly to 5.1 basis points below its U.S.
counterpart, compared with 2.1 basis points on Friday.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)