Canadian dollar up over a cent as markets rally

Fri Sep 19, 2008 4:44pm EDT
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* Canadian dollar up 1.1 pct on day, 1 pct for week

* U.S. officials to take action on toxic U.S. debt

* Bond prices drop sharply as safe-haven bid unwinds

By John McCrank

TORONTO, Sept 19 (Reuters) - The Canadian dollar rose to its highest point in three weeks against the U.S. dollar on Friday, gaining support from rallying commodity prices on the back of plans for a comprehensive package to sop up the toxic debt that has been clogging U.S. financial and money markets.

Canadian bond prices tumbled on a sharp unwinding of the recent safe-haven bid for government debt.

The Canadian dollar ended the North American session at C$1.0500 to the U.S. dollar, or 95.24 U.S. cents, up from C$1.0618 to the U.S. dollar, or 94.18 U.S. cents, at Thursday's close.

The currency gained 1 percent for the week after a soft start as markets reeled from the bankruptcy filing of Lehman Brothers Holdings Inc LEH.N LEHMQ.PK, which failed to finance risky real estate bets. The sale of Merrill Lynch MER.N and a bailout of American International Group AIG.N followed, freezing up credit markets.

"A few days ago we were looking over a cliff and what we saw was a situation similar to Japan in the 1990s unfolding for the U.S. economy," said Michael Gregory, senior economist at BMO Capital Markets.   Continued...