CANADA FX DEBT-C$ strengthens amid Europe optimism, China PMI

Mon Oct 24, 2011 7:56am EDT
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 * C$ at C$1.0068 vs US$, or 99.31 U.S. cents
 * Europe optimism, China PMI spurs risk appetite
 * Bond prices mostly higher
 By Andrea Hopkins
 TORONTO, Oct 24 (Reuters) - The Canadian dollar edged
higher against its U.S. counterpart on Monday as investors bet
on a positive outcome to the euro zone debt crisis and data
from China came in strongly, spurring gains in riskier assets.
 The safe-haven U.S. dollar was weaker against a basket of
major currencies and world stocks gained after a weekend
meeting of policymakers in Brussels, where agreements were near
on bank recapitalisation and on how to leverage the European
Union's EFSF rescue fund to try to stop bond market contagion.
 "We've seen a reasonable degree of risk momentum play out
through the majority of the morning here in Europe, not just
predicated on hopes and expectations that maybe European
leaders will get to a deal by the middle of the week," said
Jeremy Stretch, head of foreign exchange strategy at CIBC World
Markets in London.
 "Certainly the seeming agreement on bank recapitalization
is not a bad thing but I think the other factors was the flash
PMI from China, which also was encouraging for both risk and/or
commodity related dynamics, so that also provided a little bit
of a lift to the Canadian dollar."
 At 7:33 a.m. (1133 GMT), the Canadian dollar CAD=D3 stood
at C$1.0068 to the U.S. dollar, or 99.31 U.S. cents, just above
Friday's North American session close at C$1.0087 to the U.S.
dollar, or 99.14 U.S. cents.
 The currency had strengthened as high as C$1.0050 in early
trade in Europe but could not get through the C$1.0044 lows
reached last week, and Stretch said that level was an obvious
target in the near term.
 "There is also a fairly good technical level down in the
low parity 30s, so that's probably going to limit the extent of
downside risk unless we get another big bounce in risk appetite
in the afternoon session here in Europe," Stretch said.
 Stretch said markets remained skittish amid constant rumour
about the next development in euro zone debt talks, alert to
any news Wednesday's summit could be postponed.
 "There's still a great deal of uncertainty and nervousness
in terms of the euro zone story and I think that's keeping
investors, to an extent, on the sidelines."
 Final decisions by policymakers were deferred until a
second summit on Wednesday and sharp differences remain over
the size of losses private holders of Greek government bonds
will have to accept.
 Caution over Europe was offset by a sharp rise in China's
flash purchasing managers' index, suggesting that manufacturing
in the world's second-largest economy expanded moderately in
October after three months of contraction. [ID:nL3E7LL1AE]
 This will have eased fears that China's economy is heading
for a hard landing, one of the major concerns for global
investors along with the euro zone crisis and the slowdown in
the United States.
 Canadian government bond prices were mostly higher across
the board. The  two-year Canadian government bond CA2YT=RR
was up 2 Canadian cents to yield 1.073 percent, while the
10-year bond CA10YT=RR rose 10 Canadian cents to yield 2.354
 (Editing by Chizu Nomiyama)