CANADA FX DEBT-C$ nears 1-mth low as risk appetite wanes
* C$ skids to 78.89 U.S. cents, lowest level since Jan. 22
* Risk appetite dips on fears of prolonged global slowdown
* Bond prices rebound as Monday's weak data sets tone (Recasts with comments and closing numbers)
By Frank Pingue
TORONTO, Feb 17 (Reuters) - The Canadian dollar fell 1.6 percent on Tuesday and touched its lowest level in nearly a month as concerns about a deepening global recession curbed appetite for risk and boosted the low-yielding greenback.
The skid in the Canadian dollar came alongside a tumble in North American stocks after warnings from two ratings agencies sparked fear that a deep recession in Eastern Europe would cause further damage to euro zone banks.
"It's just concern that the end is not in sight, and even though there is a lot of hope, I get the feeling the market is very concerned that things are going to get worse," said Steve Butler, director of foreign exchange at Scotia Capital. "The market is really starting to turtle a bit."
Standard & Poor's said on Tuesday it may review ratings on banks in emerging Europe as the credit crisis limits Western European banks' ability to supply funding to their subsidiary banks in the region. The news followed a similar announcement from Moody's Investors Service. [ID:nLG25344]
The aversion to risk that followed the reports rattled the Canadian currency and gave a lift to prices for Canadian bonds, which are considered safe-haven investments.
The Canadian dollar closed at C$1.2637 to the U.S. dollar, or 79.13 U.S. cents, down from Monday's close of C$1.2438 to the U.S. dollar, or 80.40 U.S. cents.
Early in the North American session, the Canadian currency fell to C$1.2675, or 78.89 U.S. cents, its weakest level versus the greenback since Jan. 22.
Another drag on the commodity-linked Canadian dollar was a fall in oil prices, which dropped more than 7 percent as grim economic indicators from across the globe raised concerns about slumping demand for oil, a key Canadian export.
Data from Japan, a key oil consumer, showed it suffered a sharper contraction than other major economies in the fourth quarter, while a U.S. manufacturing report signaled the recession is worsening.
The fresh wave of weak economic data and bearish reports helped to boost the greenback, which is currently perceived by traders as a safe-haven currency. It rallied to a 10-week high versus the euro in the latest session.
BOND PRICES BOUNCE BACK
Canadian bond prices ended comfortably higher across the curve as dealers dumped riskier equities and raced into safer assets following the agency warnings about banks.
Also helping prices bounce back from Friday's selloff were dealers who played catch up as economic data released on Monday, when the bond market was closed for a holiday, showed factory sales in Canada had a record plunge in December.
The data showed manufacturing shipments dropped a record 8 percent from November, the fifth consecutive month-on-month decrease. The drop was far steeper than the 5.3 percent fall predicted by analysts.
The bond market rose due to "concerns about the health of the financial sector ... and ongoing concerns that the global recession is deepening," said Sal Guatieri, senior economist at BMO Capital Markets. "And the Canadian manufacturing didn't hurt."
Toronto's key stock index skidded 3.45 percent, while the Dow Jones industrial average fell 3.79 percent.
Canada economic data calendar will pick up on Wednesday with the January wholesale trade report, followed by the January composite leading indicators on Thursday. But Friday's consumer price index data for January will likely attract the most attention.
The interest-rate sensitive two-year bond rose 4 Canadian cents to C$102.77 to yield 1.174 percent, while the 10-year bond jumped C$1.10 to C$110.60 to yield 2.819 percent.
The 30-year bond rallied C$2.47 to C$125.62 to yield 3.556 percent.
Canadian bonds underperformed U.S. Treasuries across most of the curve. The Canadian 30-year bond yield was about 8.20 basis points above its U.S. counterpart, compared with 0.40 basis points on Friday.
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