CANADA FX DEBT-C$ edges higher as debt focus shifts to Italy

Mon Nov 7, 2011 4:52pm EST
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 * C$ ends C$1.0127 vs US$, or 98.75 U.S. cents
 * Markets await clearer direction from Europe crisis
 * Bond prices mixed
 (Updates to close, adds comment)
 By Andrea Hopkins
 TORONTO, Nov 7 (Reuters) - The Canadian dollar ended
slightly stronger against its U.S. counterpart on Monday as
markets struggled to deal with fresh turmoil in Europe as fears
heightened that Italy would be the next victim of the euro-zone
debt crisis.
 North American stock markets eked out small gains in choppy
trade while the euro fell against the U.S. dollar as Italian
bond yields soared, stoking fears that the government of
euro-zone's third-largest economy could be facing default, just
as Greece has in recent months. [MKTS/GLOB]
 The Canadian dollar held in a relatively tight range after
volatility last week, and traders said the market appeared to
be waiting for clearer direction from Europe.
 "I think we're just in fatigue mode, to be honest, because
we've moved back and forth and responded to rumor, rumor,
rumor," said David Tulk, chief Canada macro strategist at TD
 "Maybe the market is biding its time until there is greater
clarity. This thing could explode overnight but for the time
being, I think there hasn't been enough one way or another to
compel us to move in a dramatic fashion."
  The Canadian dollar CAD=D3 ended the North American
session at C$1.0127 versus the greenback, or 98.75 U.S. cents,
above Friday's North American session close of C$1.0167 to the
U.S. dollar, or 98.36 U.S. cents.
  Volatility has risen and market direction has hinged on
European headlines for weeks. While Greece has taken all the
attention recently as it looked to be teetering toward default
on its short-term debt, focus on Monday shifted to the swelling
Italian deficit.
 Italian Prime Minister Silvio Berlusconi defied heavy
pressure to step down as he faced a rebellion in his own party.
An upward move in Italian stocks and a pullback in government
bond yields reversed when he denied reports that he would
resign within hours. For details see [ID:nL6E7M60C8].
 "What happens in Europe really completely sets the tone for
the market risk environment that exists globally," said Jack
Spitz, managing director of foreign exchange at National Bank
 Gold futures GCc1 rose 1.6 percent as investors piled
into the traditional safe-haven asset.
"Whether it's Greece and the ongoing shenanigans with
respect to (former President George) Papandreou ... or whether
it's now Italy and the issues facing Berlusconi, it's all about
structural financial reform in Europe, and how tough it is to
enact legislation and find stable enough governments to get it
going," Spitz said.
 He said there was U.S. dollar support near the 20-day
moving average at C$1.0123, and the 50-day moving average at
C$1.0103. He noted U.S. dollar resistance around
C$1.0210-C$1.0230, where there was a congestion of offers for
most of last week.
 U.S. Treasuries rose  on Monday with benchmark 10-year note
yields dipping back below 2 percent as fears over rising risks
in Italy sent investors scrambling for the safety of U.S.
government debt. [US/]
 Canadian government bond prices were mixed. The two-year
bond CA2YT=RR fell 5 Canadian cents to yield 0.953 percent,
while the 10-year bond CA10YT=RR climbed 6 Canadian cents to
yield 2.156 percent.
 (Additional reporting by Claire Sibonney and Jennifer Kwan;
editing by Peter Galloway)