UPDATE 1-Canadian bonds surge after U.S. plan rejected

Mon Sep 29, 2008 3:33pm EDT
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*Canadian bond market set for more gains on safety bid

*Canadian dollar slips 0.7 percent against greenback

*Perceived chances of rate cut jump as uncertainty rises

TORONTO, Sept 29 (Reuters) - Canadian bond prices rallied on Monday as investors exited equities en masse after U.S. lawmakers rejected the U.S. $700 billion bailout package for the ailing financial sector.

The Canadian dollar slipped against the U.S. dollar, but stayed in the middle of a range it has held in recent days. Canada, with its relatively minor direct exposure to the financial crisis, was being seen as something of a safe haven, though a plunge in energy prices still weighed heavily on the commodity-linked currency.

The Toronto Stock Exchange fell over 900 points, erasing 300 points minutes after the U.S. House of Representatives' rejected of the U.S. Troubled Asset Relief Program See [ID:nSP371928], intended to bring relief to the financial sector and get credit markets moving again.

The uncertainty fueled a powerful rally in the bond market as investors sought relatively secure government debt.

"This bill was more or less assumed to go through, now that it hasn't it's left a big question mark as to what the (U.S.) Treasury will do, so there's really a massive flight to safety," said Charmaine Buskas, senior economics strategist at TD Securities.

She said the bond market was likely set for more gains as as long as the uncertainty remains.   Continued...