CANADA FX DEBT-C$ hits 3-week high on renewed risk appetite
* C$ higher at 95.83 U.S. cents
* U.S. data, commodities encourage risk-taking
* Bonds track U.S. Treasuries up on inflation outlook (Updates to North American close, adds details, quotes)
By Claire Sibonney
TORONTO, Feb 16 (Reuters) - The Canadian dollar jumped to its highest level in more than three weeks against its U.S. counterpart on Tuesday as confidence in the global economy, as well as rising commodity prices, helped fuel appetite for risk.
Oil jumped 4 percent to above $77 a barrel, responding to a weaker greenback, stronger equities, and talk of sanctions against major oil producer Iran, while gold prices also hit a two-week high. [O/R] [GOL/]
On the data front, a New York state manufacturing gauge hit its highest level since October this month, while sentiment among home builders rose more than expected, signaling continued improvement in the U.S. economy. [ID:nN16372747]
"As soon as you get this risk aversion start to wane then Canada will benefit," said Aron Gampel, senior economist at Scotiabank.
"On a comparative basis, our economy is as strong if not stronger than the U.S. Our fiscal situation is in much better shape. Household balance sheets are certainly better than they are in the U.S. and I think our diversified economy benefits as the commodity price rise continues."
As well, mounting pressure on Greece to reduce its budget deficit boosted investors' appetite for risk, stemming flows into the safe-haven U.S. dollar.
European ministers told Greece it may need to take further steps to bring its swollen debt load under control and calm financial markets. The warning followed wage cuts in Athens that sparked another strike. [ID:nLDE61F0XT]
"As we've been getting more news out of Europe about how the problems in Greece may be addressed, this has led to a reversal of the flight-to-safety trends," said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.
Investors will also look ahead to the remainder of the week for guidance from key North American indicators such retail sales, inflation figures, housing starts and industrial production.
The Canadian dollar closed at C$1.0435 to the U.S. dollar, or 95.83 U.S. cents, up from Friday's close of C$1.0517 to the U.S. dollar, or 95.08 U.S. cents. During the day, the Canadian currency hit C$1.0410, or 96.06 U.S. cents, its highest level since Jan. 20.
BONDS DEFY RISK LOGIC
Despite a surge in world stock markets on Tuesday, Canadian bond prices were mostly higher, mirroring U.S. Treasuries which edged up after the president of the Federal Reserve Bank of Minneapolis said inflation would remain relatively tame.
"But I think that as we move forward, if the stock market is pointing to the view that the economies are on an upward bias, then one would think that bond yields would trend higher, not lower," Gampel said.
"Something's got to give here. (Stocks and bonds) may be moving in the same direction today but they may not tomorrow."
The two-year bond CA2YT=RR was up 5 Canadian cents at C$100.365 to yield 1.317 percent, while the 10-year bond CA10YT=RR added 13 Canadian cents to C$102.400 to yield 3.445 percent. (Reporting by Claire Sibonney; Editing by Peter Galloway)
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