June 25, 2012 / 8:38 PM / 5 years ago

C$ sags as investors doubt Europe summit

TORONTO (Reuters) - Canada's dollar fell against its U.S. counterpart on Monday and bond prices rose as global markets were rattled on investor fears policymakers at a European summit this week would make little progress in solving the region's debt crisis.

The euro weakened broadly, global equities fell sharply and the U.S. dollar and the price of North American government debt rose as investors sought safety ahead of the June 28-29 meeting of European Union leaders. On Monday, Cyprus became the fifth euro zone country to seek EU aid.

"We have a general risk-off day so we have oil prices weaker, equity prices weaker, as I think there's concern that the EU summit will disappoint at the end of the week, and that global growth concerns are a major worry," said Camilla Sutton, chief currency strategist at Scotiabank.

The Canadian currency finished at C$1.0292 to the greenback, or 97.16 U.S. cents. Earlier, it touched C$1.0318, its weakest against the greenback since June 12.

It finished its North American session on Friday at C$1.0246 to the greenback, or 97.60 U.S. cents.

The negative backdrop had been set as Spain formally requested euro zone rescue loans on Monday to recapitalize banks that are laden with bad debts. Later, Cyprus announced it was seeking a lifeline for its banks and its budget.

Cyprus joins Greece, Ireland, Portugal and Spain in seeking EU rescue funds, meaning more than a quarter of the 17 euro zone members are now in the bloc's emergency ward. Italy's funding costs have soared too, which means it could be next.

German Chancellor Angela Merkel dashed any lingering hope in financial markets that Europe would issue common euro zone bonds to underpin its single currency after Spain formally became the fourth state to request a financial rescue.

"The markets are starting the week on a sour note, all relating to Europe," said Blake Jespersen, a managing director foreign exchange sales at BMO Capital Markets.

Jespersen said Canada's dollar, which notched a mixed performance against most of its major currency peers but outperformed the New Zealand and Australian dollars, would likely trade a range of C$1.0250-C$1.04 in the near term.

"There's no real Canadian data on the calendar until Friday so the Canadian dollar is going to take its cues from what's going on in Europe and the overall theme in the market. So expect that to be quite negative this week," he said.

Markets will await domestic growth data for April due out on Friday, as well as industrial product and raw materials price data.

Canadian bonds mirrored moves in U.S. Treasuries, which were higher as investors flocked to safety on doubt that the European summit would successfully resolve the region's debt crisis.

The two-year Canadian government bond climbed 14 Canadian cents to yield 1.002 percent, while the benchmark 10-year bond was up 76 Canadian cents to yield 1.728 percent. The 30-year bond yielded 2.301.

Reporting By Jennifer Kwan; Editing by Padraic Cassidy

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