CANADA FX DEBT-C$ stronger on oil, bonds gain slightly
* C$ up 1.1 percent, boosted by oil prices
* Auto, ABCP deals ease economic risk factors
* Bond prices up slightly
By Cameron French
TORONTO, Dec 22 (Reuters) - The Canadian dollar strengthened versus the U.S. dollar on Monday, helped by higher oil prices and the relative strength of Canada's economy compared with its U.S. neighbor.
Canadian bond prices were slightly higher.
At 9:50 a.m. (1450 GMT), the Canadian currency was at C$1.2099 to the U.S. dollar, or 82.65 U.S. cents, up from C$1.2230 to the U.S. dollar, or 81.77 U.S. cents, at Friday's close.
With trading floors thinning out ahead of year-end holidays, investors took a stronger oil price as an incentive to build on the currency's gains of the past two weeks.
"I think it's just that with a lack of anything else on which to trade, you trade off the most pressing commodity at the time, and that's oil," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
Oil's 70-percent drop from record highs this summer has yanked investment from Canada's oil-rich west and pulled the currency down from parity with the U.S. currency.
Oil was up 1 percent, while stronger prices on Monday for gold and copper, which Canada also exports, gave the currency an additional bump.
The Canadian dollar has gained ground on the back of a darkening U.S. economic picture and the U.S. Federal Reserve's subsequent interest rate cuts, which have taken the central bank's key rate down to nearly zero and given little impetus to buy U.S. debt.
The outlook for Canada's economy, while still expected to fall into recession, has not been as dire as some other countries, while Canadian central bank rates are higher than the Fed's.
Watt said a C$4 billion Canadian auto industry bailout plan announced on Saturday, as well as an apparent agreement between the country's government and banks on a C$32 billion restructuring of the frozen asset-backed commercial paper market, were further signs of the relative safety of Canada's markets.
"That just resolves one of the main lingering uncertainties in the Canadian financial system," he said of the ABCP deal.
BONDS UP SLIGHTLY
Canadian bond prices rose very slightly, taking little direction from mixed U.S. Treasuries, or from equity prices that retreated in early trading.
The recent plunge in equity markets, coupled with worries of a global recession, have prompted investors to embrace bonds as a safe-haven investment, yanking yields to their lowest levels in recent memory.
The final piece of Canadian economic news to be released this year will be monthly gross domestic product, which is due on Wednesday.
The two-year bond rose 1 Canadian cent to C$102.85 to yield 1.256 percent. The 10-year climbed 10 Canadian cents to C$112.05 to yield 2.787 percent.
The 30-year bond was up 10 Canadian cents at C$128.00 to yield 3.447 percent. In the United States, the 30-year Treasury yielded 2.571 percent. (Reporting by Cameron French; editing by Peter Galloway)
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