March 6, 2012 / 9:51 PM / 6 years ago

Loonie hits 1-week low on growth, Greece fears

TORONTO (Reuters) - Canada’s dollar fell for a third straight session against the greenback on Tuesday, dropping to the lowest level in more than a week as fears grew that the global growth outlook is darkening and that Greece may not meet a looming debt-restructuring deadline.

China’s lowering of its economic growth target for this year and data pointing to the possibility of Europe slipping back into recession have slowly eroded the market optimism generated by the European Central Bank’s huge injection of loans to banks since December.

“There are two things that have driven the rally that we’ve seen in asset classes, including (the Canadian dollar), and that’s been central bank policy, with the G4 extraordinarily loose and loosening, and the global growth outlook,” said Camilla Sutton, chief currency strategist at Scotia Capital.

“I think if we really do have a shift in either of those, that will precede a period of CAD weakness ... but we are still not at a point where we can officially call a turn, I suspect we’re more in a period of retracement.”

Meanwhile, fears were rekindled that Greece and its bond holders may not meet Thursday’s deadline for Athens to receive critically important bailout funds so that it can meet bond repayments due by March 20.

The main bond-holders group said a disorderly default would cause more than a trillion euros of damage to the euro zone and could leave Italy and Spain dependent on outside help to stop the contagion that might result.

The Canadian dollar ended the North American session at C$1.0006 against the U.S. dollar, or 99.94 U.S. cents, down from Monday’s North American session close of C$0.9942 versus the U.S. dollar, or $1.0058. Earlier, it weakened to C$1.0029, or 99.71 U.S. cents, its softest level since February 27.

Sutton put near-term resistance for the U.S. dollar against Canada’s around the psychologically important level of C$1.01, and support at Tuesday’s open around C$0.9947.

Canadian bond prices tracked U.S. Treasuries higher due to the risk-off tone in markets. <US/>

Canada’s two-year bond was up 8 Canadian cents to yield 1.080 percent. The 10-year bond climbed 38 Canadian cents to yield 1.936 percent.

Editing by Peter Galloway

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