April 23, 2009 / 3:41 PM / in 8 years

CANADA FX DEBT-Bank of Canada report pushes C$ higher

* Bank of Canada avoids immediate money expansion

* C$ rises to 81.73 U.S. cents after report

* Canada retail sales edge up 0.2 percent in Feb

* Bond prices mostly lower after bank report (Adds details, quotes)

By Jennifer Kwan

TORONTO, April 23 (Reuters) - The Canadian dollar rose sharply against the U.S. dollar on Thursday morning after the Bank of Canada laid out a broad framework for unconventional stimulus measures, but avoided immediate money expansion.

The bank provided an outline for measures including purchasing financial assets in the market, or quantitative easing, and rescuing private-sector credit markets, or credit easing, but it said it needed to be prudent and would not be taking any such steps immediately. [ID:nBAC000299]

The currency shot up to C$1.2235 to the U.S. dollar, or 81.73 U.S. cents, from C$1.2360 to the U.S. dollar, or 80.91 U.S., before the release of the Monetary Policy Report.

On Wednesday, it finished at C$1.2400 to the U.S. dollar, or 80.65 U.S. cents.

“FX implications would be fewer concerns about debasing the currency on quantitative easing,” said Derek Holt, economist at Scotia Capital.

“For those that think that inflation is a long-run risk, the fact that the Bank of Canada didn’t go full on quantitative easing would be soothing to them.”

At 11:05 a.m. (1505 GMT) on Thursday, the Canadian unit pulled back from its earlier high at C$1.2278 to the U.S. dollar, or 81.44 U.S. cents.

The currency also got some support from early firmness on equity markets, with the S&P/TSX composite index .GSPTSE climbing as energy shares rallied on Suncor’s (SU.TO) better than expected quarterly results.

Economic news also helped improve sentiment, with data on Thursday showing Canadian retail sales edged up 0.2 percent in February from January, the second straight monthly increase after major declines in November and December. [ID:nN23310364]

BOND PRICES MOSTLY LOWER

Bond prices were mostly lower across the curve as the market was disappointed that the central bank’s report provided no commitments to buy anything.

“To the degree that the provincial and corporate markets and others were considered potential targets, they’re all right now reeling a little bit,” said said Eric Lascelles, chief economics and rates strategist at TD Securities.

“The government bond market is selling off as well simply because there won’t necessarily be that extra buyer in the market.”

The two-year Canada bond was flat, up 2 Canadian cents at C$100.53 to yield 0.996 percent, while the 10-year bond fell 70 Canadian cents to C$106.30 to yield 3.021 percent.

The 30-year bond pulled back 80 Canadian cents to C$121.25 to yield 3.768 percent. In the United States, the 30-year treasury yielded 3.8330 percent. (Additional reporting by Ka Yan Ng; editing by Rob Wilson)

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