CANADA FX DEBT-C$ advances, bonds fall, as risk sentiment up
* Canadian dollar at 93.98 U.S. cents
* Bonds fall sharply in safe haven exit
By Ka Yan Ng
TORONTO, May 26 (Reuters) - The Canadian dollar rose against the U.S. currency on Wednesday as riskier assets came back in favor, recovering from its weakest level in nearly seven months.
Improving risk sentiment sent Canadian government bond prices lower across the curve.
After clawing back ground from deep losses the previous session, North American stock indexes looked set to rise, with U.S. stock index futures rising as U.S. Treasury Secretary Timothy Geithner flew to Europe to press for united action to tackle the region's deepening debt crisis. [.N][ID:nSGE64P04M]
The commodity-laden main stock index in Toronto appeared poised for gains as well, as the the price of oil, a key Canadian export, rose nearly 3 percent, lending support to the Canadian dollar. [.TO]
"I think everybody is going to be glued to the equities again today," said Steve Butler, director of foreign exchange trading at Scotia Capital.
At 8:05 a.m. (1205 GMT), the Canadian dollar was at C$1.0640 to the U.S. dollar, or 93.98 U.S. cents, up from Tuesday's close at C$1.0700 to the U.S. dollar, or 93.46 U.S. cents.
In the previous session, the Canadian dollar sagged to its lowest mark in almost seven months in a broad global sell-off of riskier assets, amid growing concern about Europe's debt crisis and the prospect of a Korean military conflict.
The recent volatility afflicting financial markets spurred debate whether the Bank of Canada will start raising interest rates on June 1, its next scheduled policy setting meeting.
But some say a rate increase would remove the emergency nature of the current ultralow overnight rate at 0.25 percent.
"I don't want them to hike rates, I want them to normalize rates. I think that's a big difference. The crisis certainly in Canada that was supposed to be, never really was and I think that they'd be much better off if they normalized rates when they can," said Butler.
The expectations of a central bank rate increase, reflected in yields on overnight index swaps, are tilted slightly toward no change in Canadian interest rates next week.
The expectations of an increase have fallen hard from April 20 when the Bank of Canada removed its conditional commitment to hold rates at record lows until June. BOCWATCH
The two-year government bond CA2YT=RR fell 12 Canadian cents to C$99.72 to yield 1.645 percent, while the 10-year bond CA10YT=RR lost 40 Canadian cents to C$101.68 to yield 3.302 percent. (Reporting by Ka Yan Ng; Editing by Theodore d'Afflisio)
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