CANADA FX DEBT-C$ weaker as caution reigns ahead of earnings

* C$ at C$0.9868 vs US$, or $1.0134
    * U.S. earnings season, mixed Europe data breeds caution
    * In quiet trade, France downgrade rumor weighs on currency

    By Alastair Sharp
    TORONTO, Jan 8 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Tuesday, as activity
was limited by mixed economic signs from Europe and caution
ahead of the North American earnings season.
    Adding to the sense of risk aversion, market participants
cited speculation that France's sovereign debt rating may get
    "It's not the first time we hear these kind of rumors going
around, it's just that there isn't much for the market to focus
on at the moment," said Audrey Childe-Freeman, global head of
foreign exchange strategy at BMO Capital Markets in London.
    At 9:20 a.m. (1420 GMT) the Canadian dollar was
trading at C$0.9868 to the greenback, or $1.0134, compared with
C$0.9857, or $1.0145, at Monday's North American close.
    Business morale in the euro zone improved again in December,
but unemployment hit a new record and households held back from
spending before Christmas, suggesting the bloc's emergence from
recession will be slow. 
    U.S. stocks were set to open lower as an earnings season
expected to show sluggish corporate growth gets under way. 
    BMO's Childe-Freeman said that while Canada's domestic
outlook compares favorably to both the U.S. and Australian
economies, investors have chosen the Australian currency as a
growth proxy for its closer ties to the improving Chinese
    She sees the Canadian currency trading between C$0.98 and
equal value to the U.S. dollar in the next couple of months,
notwithstanding an early return to the drama of U.S. fiscal
cliff and debt ceiling talks or signs that Canada's central bank
will hike rates sooner than expected.
    The two-year bond was up 4 Canadian cents to
yield 1.185 percent, while the benchmark 10-year bond
 rose 10 Canadian cents to yield 1.930 percent.