January 4, 2008 / 2:30 AM / in 10 years

Loonie dips below parity on Ivey letdown

TORONTO (Reuters) - The Canadian dollar dipped below parity with the U.S. currency on Friday for the first time in two weeks, after data showed domestic purchasing activity sagged in December.

The purchasing numbers landed in tandem with a gauge of the U.S. services sector that topped estimates and helped the greenback recover losses suffered earlier in the session.

The Canadian dollar slid to C$1.0036 to the U.S. dollar, or 99.64 U.S. cents, from a pre-data level around US$1.0087, or 99.14 Canadian cents per U.S. dollar.

It bounced back slightly and by 11:55 a.m. ET was at US$1.0003, or 99.97 Canadian cents per U.S. dollar.

The Ivey Purchasing Managers Index fell to 45.9 in December from 58.7 in November, indicating activity contracted for the first time since December 2006.

A reading of 50 indicates purchasing activity remained flat from the preceding month, while a higher reading indicates an increase and a lower reading reflects a decrease.

“The ISM services number (in the United States) was a bit better than expected and at the same time you had the weaker than expected Ivey number and that sort of caused a selloff,” said David Watt, senior currency strategist at RBC Capital Markets.

“It does seem like Ivey has had an impact on Canadian sentiment right now, but I don’t really understand why because it’s not an indicator that I really think is that reliable.”

The Ivey index, which is roughly equivalent to the U.S. Institute of Supply Management indexes, makes no distinction between manufacturing and services and is not seasonally adjusted, which can leave it prone to sharp moves.

The Ivey report wiped out earlier gains by the Canadian dollar that came on the heels of a surprisingly weak U.S. payrolls report that shook the greenback.

The Canadian dollar had rallied to US$1.0151, valuing a U.S. dollar at 98.51 Canadian cents, early in the North American session, and as high as US$1.0160 overnight.

It topped parity last September for the first time in 1976, went on to reach a modern-day high above US$1.10 in November and then trickled lower.

Editing by Rob Wilson

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