By Frank Pingue
TORONTO, Jan 3 (Reuters) - The Canadian dollar was little changed versus the greenback on Thursday morning as support offered by lofty commodity prices was offset by nagging concerns about the U.S. economy.
Bond prices were slightly lower but dealers were avoiding huge moves until the first Canadian economic data reports of 2008 arrive on Friday, along with key U.S. payrolls data.
At 9:10 a.m. (1410 GMT), the Canadian dollar was at US$1.0075, valuing a U.S. dollar at 99.25 Canadian cents, up from US$1.0072, or 99.28 Canadian cents, at Wednesday's close.
A favorable commodity backdrop, with oil sticking near the $100 a barrel level it reached on Wednesday and gold sitting at a record high, would normally light a fire under the currency.
Canada is a major producer and exporter of both oil and gold, and the performance of its currency often mirrors the direction of prices for the two commodities.
But enthusiasm for the currency has been tempered severely by concerns that the U.S. economy could be headed for a downturn, which would have negative implications for Canada.
"The Canadian dollar is dealing with the twin forces of very strong commodity prices on one side but mounting concerns about the U.S. outlook on the other side," said Doug Porter, deputy chief economist at BMO Capital Markets. "So far those forces are basically battling to a draw."
Some recent U.S. economic data reports have supported the notion that the U.S. Federal Reserve will cut interest rates later this month.
Porter suggested foreign exchange market participants were avoiding huge bets until catching a glimpse of a key U.S. December payrolls report due on Friday.
Any moves by the Canadian dollar this week could be exaggerated given relatively thinly staffed trading desks during a holiday-shortened week.
Bank of Canada Governor David Dodge, speaking during a television interview aired on Wednesday, said the Canadian currency's rise has been largely warranted by improved terms of trade over the past several years.
The Canadian dollar is coming off a banner year in which it recorded a gain of about 17.5 percent and marched above parity with the U.S. dollar for the first time in 31 years.
BONDS TURN LOWER
Canadian bond prices fell into negative territory across the curve as the lack of any domestic data forced dealers to look for direction south of the border, where two reports pointed to a soft but growing labor market.
The Canadian economic calendar is empty until the release of the industrial product price and raw materials price indexes for November on Friday.
The overnight Canadian Libor rate LIBOR01 was at 4.2016 percent, down from 4.2166 percent on Wednesday.
Thursday's CORRA rate CORRA= was at 4.2211 percent, down from 4.2344 percent on Wednesday. The Bank of Canada publishes the previous day's rate at around 9 a.m. (1400 GMT) daily.
The two-year bond was down 2 Canadian cents at C$101.14 to yield 3.621 percent. The 10-year bond dropped 15 Canadian cents to C$100.55 to yield 3.929 percent.
The yield spread between the two-year and 10-year bond was 30.6 basis points, up from 28.7 basis points at the previous close.
The 30-year bond slipped 39 Canadian cents to C$116.03 to yield 4.061 percent. In the United States, the 30-year treasury yielded 4.386 percent.
The three-month when-issued T-bill yielded 3.88 percent, up from 3.82 at the previous close.