CANADA FX DEBT-C$ hits one-week high after retail sales data
* C$ gets lift from unexpected gain in retail sales
* Currency now up 4.5 percent from end of last week
* Bond prices rally alongside U.S. Treasuries
By Frank Pingue
TORONTO, Nov 25 (Reuters) - The Canadian dollar rose to its highest in over a week on Tuesday as unexpectedly strong domestic retail sales data and a fresh U.S. program to help promote lending dulled the greenback's safe-haven status.
Domestic bond prices rebounded from losses suffered in the previous session and were higher across the curve given some weak U.S. economic data and market views that the recent stock market rally may have lost steam.
At 10:00 a.m. (1500 GMT), the Canadian unit was at C$1.2225 to the U.S. dollar, or 81.80 U.S. cents, up from C$1.2345 to the U.S. dollar, or 81.00 U.S. cents, at Monday's close.
The domestic currency's rally also followed economic data that showed retail sales in Canada were unexpectedly strong in September and more than offset a decline in sales in August.
But the retail sales data may not be enough to support the Canadian currency given the economy's likely performance in October when financial markets around the world plummeted.
"A lot of the data that looks back two or three months is largely being being pushed aside, especially if it is positive, because the market is looking at things and saying we know we are potentially in a recession," said George Davis, chief technical strategist at RBC Capital Markets.
A number of the country's biggest banks have forecast in recent months that Canada will slip into recession, and earlier this week Canadian Finance Minister Jim Flaherty said it is reasonable to expect the economy could soon fall into recession.
The Canadian dollar is up 4.5 percent this week after two weeks of decline in which it shed a total of 7 percent. Earlier, it rose to C$1.2126 to the U.S. dollar, its highest since Nov. 17.
Davis said one of the drivers behind the currency's latest rally was a multibillion U.S. program to buy mortgage-related debt and increase the availability of lending of auto loans, student loans and credit cards.
The plan's announcement contributed to a further easing of the extreme risk aversion and repatriation of funds that has driven the U.S. dollar sharply higher in recent weeks.
Canadian bond prices rallied along with the bigger U.S. Treasury market after data showed the U.S. economy had contracted in the third quarter more than previously estimated, reinforcing the impression that a recession is under way.
Nagging fears about the unfolding credit crisis and the slowdown in the global economy also lent support to bond prices.
The Canadian overnight Libor rate LIBOR01 was 2.2583 percent, up from 2.3166 percent on Monday.
Monday's CORRA rate CORRA= was 2.2472 percent, up from 2.2430 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond was up 9 Canadian cents at C$101.92 to yield 1.780 percent. The 10-year bond rose C$1.05 to C$107.05 to yield 3.376 percent.
The yield spread between the two-year and 10-year bond was 171 basis points, up from 166 at the previous close.
The 30-year bond jumped C$2.00 to C$117.60 to yield 3.964 percent. In the United States, the 30-year Treasury yielded 3.589 percent. (Reporting by Frank Pingue; Editing by Frank McGurty)
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