June 28, 2012 / 8:50 PM / in 5 years

C$ sinks to 3-week low on EU summit doubt

TORONTO (Reuters) - Canada's dollar fell to a three-week low on Thursday against the U.S. currency, with investors doubtful that a major European Union summit would produce new measures to stem the region's debt crisis.

Pessimism pushed the euro to its lowest level in more than three weeks, while investors dumped Spanish and Italian debt and pushed yields above the 6.25-percent mark as the meeting in Brussels began. <MKTS/GLOB>

"All eyes are on Europe. Until we get a clearer announcement from Europe risk aversion continues to be the dominant trading factor," said Dean Popplewell, chief currency strategist at OANDA.

"We're looking for a stronger financial system ... some pledge towards growth, some sort of debt relief, further debt relief for the periphery countries," he said.

Popplewell said without such pledges the Canadian currency could fall to a low of C$1.05 against the U.S. currency in the near term.

The Canadian currency ended at C$1.0328 to the greenback, or 96.82 U.S. cents, after touching a low of C$1.0363, its weakest since June 6. The currency finished Wednesday's North American session at C$1.0255 to the greenback, or 97.51 U.S. cents.

European finance officials were working on urgent measures to ease financial market pressure on Spain and Italy, which are too big to bail out, as EU leaders began a summit on Thursday deeply divided over how to resolve the euro zone's debt crisis.

Matt Perrier, director of foreign exchange sales at BMO Capital Markets, said the weakness in the currency reflected market doubt the meeting will produce significant measures.

"The likelihood of any concrete, actionable outcome from the summit is probably fairly low in people's minds," said Perrier.

"The markets are a little softer here on anticipation we'll just get more of the same lip service to the problem."

The Canadian dollar underperformed against major currencies including the commodity-linked Australian and New Zealand dollars, and the euro.

But it wasn't all gloom from Europe. North American factors also soured the broader market mood.

Wall Street losses accelerated after a divided U.S. Supreme Court backed the centerpiece of President Barack Obama's signature healthcare overhaul law. The decision surprised many investors, who see the law as a hallmark of a business unfriendly administration. <.

Canadian bond prices were higher across the curve, following moves in U.S. Treasuries, which climbed as investors favored safety on the uncertain outcome of the European summit. <US/>

The two-year Canadian government bond edged 5 Canadian cents higher to yield 0.967 percent, while the benchmark 10-year bond added 37 Canadian cents to yield 1.686 percent.

Editing by Jeffrey Hodgson

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