CANADA FX DEBT-C$ firms from 12-year low after Bank of Canada holds rate steady

* Canadian dollar at C$1.4490 or 69.01 U.S. cents
    * Currency had hit a fresh 12-year low at C$1.4689
    * Bond prices mixed as Bank of Canada holds steady
    * The 10-year yield hit a fresh record low at 1.094 percent

    By Fergal Smith
    TORONTO, Jan 20 (Reuters) - The Canadian dollar rallied
against its U.S. counterpart on Wednesday after the Bank of
Canada surprised many traders by leaving rates on hold,
rebounding from a fresh 12-year low despite a worsening rout in
crude oil prices.
    The central bank decided not to cut interest rates but
admitted it was not an easy call, as concern about a rapid
decline in the currency clashed with an economic slump.
    "(A rate cut) would send the wrong signal to the market at
this point and time," said Darcy Briggs, a fixed-income
portfolio manager with the Bissett unit of Franklin Templeton
    "The effects of the currency depreciation take time to come
through the system," Briggs added.
    The Bank of Canada has yet to incorporate expected fiscal
stimulus into its projections. It suggests to some dealers that
the central bank will wait until the federal budget is tabled
before any move on rates, keeping the central bank sidelined in
    However, the market has implied a greater-than 50 percent
probability of an April rate cut and it has fully discounted a
rate cut by year-end. 
    "Our view is that they'll remain data-dependent," said
    Canadian manufacturing sales and wholesale trade rebounded
more strongly than expected in November. That data, however, was
overshadowed by financial market volatility and the rate
    The Canadian dollar ended at C$1.4490 to the
greenback, or 69.01 U.S. cents, firmer than Tuesday's close of
C$1.4559, or 68.69 U.S. cents.
    The currency's strongest level of the session was C$1.4474,
while it hit its weakest since April 2003 at C$1.4689.    
    U.S. oil prices crashed to below $27 for the first time
since 2003, caught in a broad slump across world financial
    "The short-term impact of the Bank decision will fade," said
David Watt, chief economist at HSBC Bank Canada, pointing to the
currency's tight relationship with crude oil prices.    
    Canadian government bond prices were mixed across a much
flatter maturity curve.
    The two-year price was down 21 Canadian cents to
yield 0.392 percent as the rate decision weighed on the
front-end. But the benchmark 10-year rose 8 Canadian
cents to yield 1.169 percent, supported by the flight to safety.
It hit a fresh record low at 1.094 percent.
    The Canada-U.S. two-year bond spread was 13.8 basis points
less negative at -43.7 basis points, while the 10-year spread
was 3.2 basis points less negative at -82.6 basis points as
Canadian government bonds underperformed.

 (Editing by Nick Zieminski and Jonathan Oatis)