July 6, 2009 / 9:13 PM / in 8 years

CANADA FX DEBT-C$ helped higher by late U.S. stocks rally

* Canadian dollar rises to 86.27 U.S. cents at close

* Late U.S. stocks rally aids C$; TSX ends sharply lower

* Bond prices mixed; long end pressured by supply concerns (Adds details, quotes)

By Jennifer Kwan

TORONTO, July 6 (Reuters) - A late-day rally in U.S. equities helped the Canadian dollar close higher against the U.S. currency on Monday after it traded weaker for most of the session.

U.S. stocks bounced higher just before the close as concerns about the strength and timing of an economic recovery kept pressure on commodity prices, but helped to lift stocks considered to be defensive plays. [ID:nN06280952]

Higher equity markets are typically seen as a sign of investor willingness to take risk, and as such are generally seen as favorable for currencies such as the Canadian dollar that are perceived to be riskier than the greenback.

“We saw a nice pop higher in U.S. stocks and that basically caused the U.S. dollar to weaken across the board,” George Davis, chief technical strategist at RBC Capital Markets.

The Canadian currency peaked at C$1.1588 to the U.S. dollar and fell as low as C$1.1680, its lowest level in seven weeks.

It finished the day at C$1.1591 to the U.S. dollar, or 86.27 U.S. cents, up from Friday’s close of C$1.1617 to the U.S. dollar, or 86.08 U.S. cents.

For most of the day Canadian dollar was pressured by a slide in Toronto equities as weak commodity prices and doubts about global economic recovery pulled the key Toronto stock market index down as much as 3 percent. [ID:nN06281225]

Also hurting the currency was a slide in the price of oil CLc1, a key Canadian export, which tumbled 4 percent to settle at $64.05 a barrel on the economic concerns. [ID:nSYD537953]

BOND PRICES MIXED

Canadian bond prices were mixed with the short end slightly higher and longer-dated bonds lower, following the bigger U.S. Treasury market, where long-dated debt fell on supply concerns. [ID:nN06261172]

“The market seems to be favoring the front end of the yield curve as opposed to the back end,” said Sheldon Dong, fixed income analyst TD Waterhouse Private Investment.

“We have longer-dated bond auctions later this week,” he added of the U.S. market. “No one wants to bid up the prices.”

The two-year Canada bond was up 3 Canadian cents at C$100.18 to yield 1.156 percent, while the 10-year bond was up 13 Canadian cents to C$103.46 to yield 3.336 percent.

The 30-year bond was down 25 Canadian cents to C$119.30 to yield 3.863 percent. In the United States, the 30-year Treasury yielded 4.3512 percent. (Reporting by Jennifer Kwan; editing by Peter Galloway)

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