March 1, 2010 / 2:21 PM / 10 years ago

CANADA FX DEBT-C$ rises, bonds fall after Q4 GDP beats estimates

 * C$ jumps to 95.53 U.S. cents, highest in almost a week
 * Bonds fall sharply as rate hike expectations edge up
 * Canada economy roars back to life in Q4
 By Ka Yan Ng
 TORONTO, March 1 (Reuters) - Canada's currency strengthened
against the U.S. dollar, while government bonds fell across the
curve, after data showed Canada's quarterly economic growth
beat estimates, raising the possibility that the Bank of Canada
hikes rates sooner than expected.
 The Canadian dollar rose to its highest in nearly a week at
C$1.0468 to the U.S. dollar, or 95.53 U.S. cents, from C$1.0528
to the U.S. dollar, or 94.98 U.S. cents, just before the data
was released.
 It was also up from Friday's close at C$1.0525 to the U.S.
dollar, or 95.01 U.S. cents.
 Strong consumer spending and new housing construction
boosted Canada's annualized economic growth for the fourth
quarter of 2009 to 5.0 percent, Statistics Canada said,
exceeding market expectations of a 4.1 percent increase.
[ID:nN01244875] ECONCA
 The report also surpassed the Bank of Canada's projection
that the economy grew 3.3 percent in the fourth quarter, which
could fuel debate that the central bank could lift rates before
its conditional pledge runs out.
 The bank has promised to keep rates low until the end of
the second quarter as long as inflation remains in check.
 "At this point, I think the Bank does have scope to
maintain its conditional commitment of holding the overnight
rate unchanged until the end of the second quarter, although
certainly the probability is rising that they may have to move
in advance of that," said Paul Ferley, assistant chief
economist at Royal Bank of Canada.
 Yields on overnight index swaps, which trade based on
expectations for the Bank of Canada's key policy rate, edged
higher after the data, showing the market saw tightening as
slightly more likely. BOCWATCH
 Canadian bond yields also edged higher after the data. The
two-year Canadian government bond CA2YT=RR fell 8 Canadian
cents to C$100.35 to yield 1.322 percent, while the 10-year
bond CA10YT=RR dropped 26 Canadian cents to C$102.54 to yield
3.427 percent.
 (Editing by Jeffrey Hodgson)

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