CANADA FX DEBT-C$ weakens to fresh 2011 low amid risk aversion
* C$1.0545 vs U.S. dollar, or 94.83 U.S cents
* Greek default fears fuel banking crisis
* Bond prices higher across the curve
By Andrea Hopkins
TORONTO, Oct 4 (Reuters) - The Canadian dollar hit a fresh 2011 low against its U.S. counterpart on Tuesday as global markets braced against the growing prospect of a Greek default and potential European banking crisis.
A fresh sell-off in risky assets, including stock markets and commodity-linked currencies like the Canadian dollar, began after euro zone finance ministers said they were reviewing the size of private sector involvement in a second bailout package for Greece, a move that could hasten a default. [MKTS/GLOB]
World stocks hit a fresh 15-month low and the euro fell across the board as investors chose the relative safety and liquidity of the U.S. dollar. The risk aversion pushed the Canadian dollar to its lowest point since Sept. 1, 2010.
Still, traders said Canada's dollar has outperformed many rivals in recent weeks and still looks relatively strong, likely benefiting from Canada's decent economy and strong banking system.
"Globally, it just looks like such a meltdown and shunning of risk that Canada should probably be weaker and is doing quite well," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"With complete risk aversion you can't expect to be gaining, but we are less worse than a lot of others, which isn't good English, but pretty much sums it up."
At 8:50 a.m. (1250 GMT), the Canadian dollar CAD=D3 stood at C$1.0545 to the U.S. dollar, or 94.83 U.S. cents, down from Monday's North American session close at C$1.0511 to the U.S. dollar, or 95.14 U.S. cents.
Butler said the Canadian dollar could weaken as far as C$1.06 with Wall Street braced for a lower open, but may also regain some strength later in the session and climb back towards support at C$1.0460-C$1.0480.
The currency has been hitting new 2011 lows almost daily since it sank through parity to the U.S. dollar in September and North American stock markets entered bear market territory.
The Canadian dollar has lost more than 6 percent in the last month, which Butler said is a relatively good performance next to the 11 percent losses sustained by the Australian, New Zealand or Mexican currencies in the same time period.
"Things don't appear to be quite as bad in Canada as elsewhere, we've got a fairly solid foundation in terms of how the Bank (of Canada) has handled things and how the banking system is, and we've still got, although the commodities are softer than they were, we've still got a reasonably decent economic situation going for us," Butler said.
U.S. stock index futures fell sharply ahead of the market open, with the S&P 500 set to enter a bear market as European officials considered making banks take bigger losses on Greek debt and fears of contagion grew.
The prospect of private creditors taking a bigger writedown on their holdings of Greek debt than agreed in July added to unease about an already fragile European banking sector.
Bond prices were higher across the curve. The two-year Canadian government bond CA2YT=RR was up 1 Canadian cent to yield 0.834 percent, while the 10-year bond CA10YT=RR gained 20 Canadian cents to yield 2.542 percent.
(Editing by Chizu Nomiyama, Editing by Chizu Nomiyama)
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