December 13, 2011 / 1:22 PM / in 6 years

Loonie flat on Europe-induced "uncomfortable calm"

TORONTO (Reuters) - Canada’s dollar was little changed on Tuesday against its U.S. counterpart as investors digested last week’s European Union summit pact and warnings by credit rating agencies about the region’s outlook.

At 8:00 a.m. (1300 GMT), the Canadian dollar was at C$1.0255 to the U.S. dollar, or 97.51 U.S. cents, a hair higher from Monday’s finish at C$1.0258 to the U.S. dollar, or 97.48 U.S. cents.

“Really, we’re not in a play. The Canadian dollar is a bit of a sideshow,” said Firas Askari, head of foreign exchange trading at BMO Capital Markets.

“What you’ve got globally now, the macro factors, is a very uncomfortable calm as people are trying to figure out what exactly is going to come out and is Europe going to be able to get itself together.”

Led by Germany and France, 26 of the 27 nations in the European Union agreed after a two-day summit to pursue tighter integration with stricter budget discipline in the euro zone. Britain said it could not accept the proposed EU treaty amendments.

The move sparked at rally in global markets, but the euphoria faded on Monday due to legal uncertainties and the absence of an unlimited financial backstop for the euro.

Askari said the Canadian dollar would likely be stuck in a range of C$1.0150-C$1.0450 heading into the new year.

On the upside on Tuesday, investors took some encouragement from lower yields at an auction of Spanish short-term debt, while a survey showed German investor sentiment rose unexpectedly in December although worries about the severity of the region’s debt crisis remained.

But the warnings from credit rating agencies threatened to keep any gains in check.

Moody’s has said it intends to review the credit ratings of all 27 European Union states in the first quarter of 2012, while another ratings agency, Fitch, said pressure on their ratings had risen after last week’s EU summit yielded no “comprehensive” solution to the crisis.

Standard & Poor‘s, the other major rating agency, already has 15 euro zone states on watch for a possible downgrade.

Canadian government bond prices were mostly lower across the curve, with the two-year bond down 2 Canadian cents to yield 0.887 percent, while the 10-year bond shed 7 Canadian cents to yield 2.019 percent.

Reporting By Jennifer Kwan; Editing by Theodore d'Afflisio

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