March 5, 2009 / 3:38 PM / in 9 years

REFILE-CANADA FX DEBT-C$ falls with oil, bonds rise

(Refiles to fix typo in headline)

* Canadian dollar weakens as growth prospects, oil weigh

* BoE, ECB cut interest rates; see weak growth

* Bonds rise as equities slide (Adds details)

TORONTO, March 5 (Reuters) - The Canadian dollar fell on Thursday as the prospect of sustained global economic weakness drove up safe haven flows to the U.S. dollar.

Falling oil prices also weighed on the Canadian dollar. Oil is a key Canadian export and often sets direction for the currency.

At 10:12 a.m. (1512 GMT), the Canadian dollar was at C$1.2800 to the U.S. dollar, or 78.13 U.S. cents, down from C$1.2754, or 78.41 U.S. cents, at Wednesday’s close.

The Canadian dollar rallied more than 1 U.S. cent on Wednesday as investors bought up riskier assets, spurred partly by expectations that China would introduce extra stimulus measures.

However on Thursday Premier Wen Jiabao said China would ramp up deficit spending this year to hit its 8 percent growth target, but did not announce an increase in the country’s two-year economic stimulus plan. [ID:nSP395150].

“There was great optimism yesterday there would be another package,” said Eric Lascelles, chief economics and rates strategist at TD Securities. “There is some unwind of the optimism.”

The currency hit a three-month low earlier this week after the Bank of Canada cut interest rates to a record low. It headed in that direction again on Thursday as the European Central Bank and the Bank of England also reduced rates to historic lows.

Further weakness was seen after European Central Bank President Jean-Claude Trichet said inflation had cooled and eurozone growth was likely to remain weak this year.

The Bank of England said it would start boosting the economy’s supply of money through asset buying. [ID:nSP392276]

Bank of Canada Deputy Governor Pierre Duguay said on Thursday that plans worldwide to resolve the financial crisis were good but needed to be well-executed. He did not elaborate on the Bank of Canada’s plans to pump money into the system. The bank has pledged to provide details in April following its Monetary Policy Report.

“I wouldn’t expect further meat to the announcement until then,” said Derek Holt, an economist at Scotia Capital.

The C$1.30 level still represents a key psychological mark for the Canadian dollar that, if breached, could set the stage for it to hit lows not seen since 2004. Several attempts had been made at this level this past week.

BONDS RISE

Bonds were higher across the curve as investors shunned stocks after General Motors warned of possible bankruptcy.

This sent European stocks lower and pushed North American stocks down more than 1 percent. Asian stocks had set a negative tone with disappointment stemming from the China news.

The interest-rate sensitive two-year bond edged up 2 Canadian cents to C$103.09 to yield 0.947 percent. The 10-year bond gained 51 Canadian cents to C$106.97 to yield 2.954 percent.

The 30-year bond advanced C$1.05 to C$124.40 and yielded 3.614 percent. (Reporting by Ka Yan Ng and Jennifer Kwan; Editing by Peter Galloway)

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