September 26, 2012 / 1:33 PM / in 5 years

Canadian dollar weakens as European worries unnerve investors

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Wednesday, tracking global markets, as worries about the world economy and a bailout for Spain weighed on sentiment.

Stock markets fell around the world on Wednesday and the European single currency hit a two-week low as popular opposition within the euro zone to austerity unnerved investors already worried about a weak global growth outlook.

Concern about a bailout for Spain and over the euro zone’s ability to tackle its financial crisis has sparked a sharp rise in volatility on equity markets, leading to the worst day since June for the S&P 500 index on Tuesday and subsequent falls across Asia. <MKTS/GLOB>

“There’s no one thing in particular the market’s focusing on. We’ve just had this constant drip-feed of what’s been taken as negative news,” said Adam Cole, global head of FX strategy at RBC Capital Markets in London.

“None of them is really new, nothing that we didn’t already know, but the fact that it’s just been relentless all day, really, has given us this negative tone for risk generally and that’s weighing on the Canadian dollar.”

At 9:06 a.m. (1306 GMT), the Canadian dollar stood at C$0.9834 versus the U.S. dollar, or $1.0169, down from Tuesday’s North American session close at C$0.9806, or $1.0198.

Cole said that with little domestic news expected to drive the currency, the top of the range for the Canadian dollar should be capped around C$0.9840, near current levels.

“It would take significant news to get it to break up through that,” said Cole, adding that in the near term, the currency should not weaken too much more than C$0.99 to the U.S. dollar due to the Federal Reserve’s ambitious stimulus program.

Canadian government bond prices were higher across the curve. The two-year bond rose 3.2 Canadian cents to yield 1.106 percent, while the benchmark 10-year bond gained 44 Canadian cents, yielding 1.767 percent.

Reporting by Solarina Ho and Andrea Hopkins; Editing by James Dalgleish

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