CANADA FX DEBT-C$ recovers from 7-week low to close firmer
* C$ edges up to C$0.9726 to the U.S. dollar, or $1.0282
* Late session, broadbased US$ decline helps spur reversal
* Bond prices rise on U.S. data, Europe worries
By John McCrank
TORONTO, May 17 (Reuters) - Canada's dollar closed higher against a broadly weaker U.S. dollar on Tuesday in light, choppy trading as uncertain investors questioned the viability of the global economic rebound.
Early in the session the currency touched C$0.9794 -- its weakest point against the greenback since March 28 -- after data showed that U.S. housing starts and permits slumped in April, as did factory output. [ID:nLDE74G1QN]
The data pointed to a slow start to the second quarter for the world's biggest economy, which absorbs around three quarters of all Canadian exports.
But as the session wore on, the U.S. dollar weakened in light volume against all major currencies except the Japanese yen.
The weaker greenback on Tuesday may have been due to some profit-taking among investors, said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
Concerns over the fiscal situation in Europe and waning strength in some of the larger Asian economies had given the U.S. dollar a boost as of late, and taken the steam out of commodity-based currencies like the Canadian, Australian, and New Zealand dollars.
Some analysts said that data out of Canada showing a rebound in foreign purchases of Canadian securities in March helped support the currency. The report was seen as a sign of confidence in the soundness of the country's economic fundamentals. [ID:nN17130640]
The Canadian dollar CAD=D4 ended the North American session at C$0.9726 to the U.S. dollar, or $1.0282, up from C$0.9742 to the U.S. dollar, or $1.0265 at Monday's close.
Osborne said he expects the Canadian dollar to trend lower against the greenback over the near- to medium-term, as investors are becoming more risk averse and the U.S. dollar is generally seen as the safe-haven currency of choice.
"I think we're sitting on the cusp of a move towards parity," he said.
An end to the U.S. central bank's quantitative easing policy would also likely breath some life back into the U.S. dollar, said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets in Toronto.
"By most measures, the U.S. dollar is still quite undervalued," he said.
BOND PRICES RISE
Canadian bond prices rose on the back of the weak U.S. data, which gave a bid to safe-haven government debt, Chandler said.
He added that there was a firmer tone for bond markets in general even before the data on continued worries on the sovereign debt front out of Europe.
Canada's two-year bond CA2YT=RR rose 5 Canadian cents to yield 1.642 percent, while the 10-year bond CA10YT=RR climbed 17 Canadian cents to yield 3.165 percent. (Editing by Jeffrey Hodgson)
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