CANADA FX DEBT-C$ hits 1-month low, stung by 'fiscal cliff' fear

* C$ weakens to close at C$0.9949 vs US$, or $1.0051
    * Reid's pessimism on budget deal sends investors to safety
    * Bond prices mostly higher

    By Andrea Hopkins
    TORONTO, Dec 27 (Reuters) - The Canadian dollar ended weaker
after touching a one-month low against its U.S. counterpart on
Thursday, as investors fled to safety after the top Democrat in
the U.S. Senate said the country looked to be headed over the
"fiscal cliff" of tax hikes and spending cuts.
    Majority Leader Harry Reid told the Senate in a speech that
"it looks like that is where we're headed." 
    Commodity-linked currencies like the Canadian dollar tend to
benefit when U.S. budget negotiations run smoothly, but when
there are snags, investor flows go into the highly liquid U.S.
    "Today it is about the headlines on the fiscal cliff and
risk aversion and the U.S. dollar getting a bit of a safe-haven
bid," said Shaun Osborne, chief currency strategist at TD
    "We've had some short-end Treasury bills go negative as
people move into safe havens, and I think that is an indicator
of where money is going to flow as the fiscal cliff looms even
larger in the next few days."
    The Canadian dollar ended the North American
session at C$0.9949 versus the U.S. dollar, or $1.0051, down
from Monday's North American session close at C$0.9913 versus
the U.S. dollar, or $1.0088. 
    It hit C$0.9959 earlier in the session, its weakest level
since Nov. 28. The currency pared some of its losses after the
U.S. House of Representatives, in the barest sign of progress,
said it would come back to work this weekend.
    North American markets were closed on Dec. 25, and most
Canadian currency traders were away on Wednesday for Boxing Day,
making Thursday the first day of normal trade since markets
closed on Monday, Christmas Eve.
    Reid called on the Republicans who control the House of
Representatives to prevent the worst of the fiscal shock by
getting behind a Senate bill to extend existing tax cuts for all
except the wealthiest Americans who earn more than $250,000 a
    With the House not in session and the clock ticking toward
the scheduled January start of tax increases and deep, automatic
government spending cuts, Reid offered little hope.  
   "I don't know time-wise how it can happen now," he said.
    TD's Osborne said the Canadian dollar is likely to weaken
toward parity in the "not so distant" future, given the global
worries over U.S. economic growth and its knock-on effect on
Canadian growth should the U.S. fail to reach a budget deal.
    "I think we're looking at a return towards the recent
November highs around C$1.0050, (that's) a pretty reasonable
objective over the next week or so," Osborne said.
    Canadian government bond prices were mostly higher on the
flight to safety. The benchmark 10-year bond rose 23
Canadian cents to yield 1.793 percent.