CANADA FX DEBT-C$ rises slightly in thin markets
* Canada dollar rises 0.3 percent
* Currency trims early gains as oil retreats
* Bond prices mixed, weak on long end
By Cameron French
TORONTO, Dec 22 (Reuters) - The Canadian dollar closed slightly higher versus the U.S. dollar on Monday, trimming early gains as oil prices declined, while light trading volumes led to wide swings as investors pushed through end-of-year transactions.
Bond prices ended mixed but fairly flat, with long end maturities retreating.
The currency closed at C$1.2190 to the U.S. dollar, or 82.03 U.S. cents, up from C$1.2230 to the U.S. dollar, or 81.77 U.S. cents, at Friday's close.
An early rise in oil prices helped the Canadian dollar to a session high of 83.44 U.S. cents, but the gains mostly evaporated as oil prices eased to end 6 percent lower.
The currency still held on to some of the advance, however, as tight volumes led to sharp moves on small transactions, obscuring the impact of fundamental news.
"The volatility's so high and the liquidity's so low that it's an absolutely deadly combination for anybody trying to put through some volume in the markets," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto.
A C$4 billion Canadian auto industry bailout plan announced on Saturday as well as reports of an agreement between the country's government and banks on a C$32 billion restructuring plan for the frozen asset-backed commercial paper market, had little if any impact on the currency, he said.
The currency has strengthened fairly steadily over the greenback in the past two weeks, particularly as the U.S. Federal Reserve cut its key interest rate almost to zero last week, reducing the yield on U.S. debt investments.
Butler said he expects the Canadian dollar to rise versus the U.S. currency, although the longer-term direction will not really be clear until normal market volumes return in January.
Canadian bonds ended mixed, with longer maturities following the lead of weaker U.S. Treasuries, while two-year bonds rose on expectations of more interest rate cuts and weaker stock prices.
Canada's debt market often follows the lead of its larger neighbor when there's little domestic economic news. Treasuries eased as a record size auction of two-year notes added to fears that new debt supply could dilute the market.
Canadian bond yields are around their lowest levels in more than a decade as recession fears have driven investors to liquidate stock and commodity holdings and shift their funds into safe-haven debt.
The two-year bond rose 5 Canadian cents to C$102.89 to yield 1.235 percent. The 10-year slid 10 Canadian cents to C$111.85 to yield 2.810 percent.
The yield spread between the two-year and 10-year bond was at 156 basis points, up from 153.4 basis points at the previous close.
The 30-year bond fell 35 Canadian cents to C$127.55 to yield 3.468 percent. In the United States, the 30-year Treasury yielded 2.616 percent. (Reporting by Cameron French; editing by Peter Galloway)
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