By John McCrank
TORONTO, Dec 17 (Reuters) - The Canadian dollar gained more than a cent against the U.S. dollar on Monday as interest in the greenback prompted investors to cast their nets widely, lifting all three North American currencies against the crosses.
Canadian bond prices ended higher as investors sought the safety of government debt amid declining equity markets.
The Bank of Canada said the Canadian dollar closed at C$1.0057 to the U.S. dollar, or 99.43 U.S. cents, up from C$1.0170 to the U.S. dollar, or 98.33 U.S. cents, on Friday.
The Canadian dollar fell as low as 97.76 U.S. cents in the overnight session before reversing direction.
"There's been a steady stream of Canadian dollar buyers on the back of the strength in the U.S. dollar," said Jack Spitz, director of foreign exchange at National Bank Financial.
The Canadian dollar, along with the Mexican peso, has been buoyed by strength in the greenback since the end of last week, as recent U.S. data has suggested that the U.S. Federal Reserve may not have to cut interest rates as aggressively as earlier thought to contain the country's economic slowdown.
"The Canadian dollar strength is not inappropriate, given the fact that Canada derives most of its economic benefit from what happens south of the border," Spitz said.
"It stands to reason that the better economics in the States will ultimately translate into better economics in Canada."
Forex markets ignored data from Statistics Canada that showed foreign divestment of Canadian securities hit a record high in October as some Canadian portfolio shares were withdrawn from markets after being taken over by foreign interests. See [ID:nN172729]
Nonresidents lowered their Canadian holdings by C$24.32 billion.
"(It's) largely a story for currency markets in that it is helping to flesh out some of the details behind the rather substantial appreciation in CAD in the month of October -- flow-related as takeovers crowded in demand for the currency," said Stewart Hall, market strategist at HSBC Canada, in a note.
Canadian bond prices rose, outperforming U.S. Treasuries, as investors sought the safety of government debt due to tumbling equities markets.
The Toronto Stock Exchange's main index dropped more than 2 percent on Monday in a broad-based retreat as investors fretted over the state of the U.S economy, while taking some year-end profits.
"If you look at it, a lot of the equity weakness seems to be an unwinding of a lot of the gainers we've seen this year, with IT a little bit softer, along with materials and energy," said Mark Chandler, fixed income strategist at RBC Capital Markets.
"If that trend continues, I think on a relative basis, it might mean that the Canadian bond market could do a little bit better than the U.S bond market for the rest of the year."
There are several key pieces of Canadian data to be released this week, starting with November's inflation numbers on Tuesday, followed by gross domestic product and retail sales, both for October, on Friday.
The two-year bond rose 12 Canadian cents to C$100.68 to yield 3.885 percent. The 10-year bond added 64 Canadian cents to C$99.52 to yield 4.061 percent.
The yield spread between the two-year and 10-year bond moved to 17.6 basis points from 19.3 at the previous close.
The 30-year bond rose C$1.40 to C$114.36 to yield 4.150 percent. In the United States, the 30-year treasury yielded 4.588 percent.
The three-month when-issued T-bill yielded 3.88 percent, down from 3.91 percent at the previous close. (firstname.lastname@example.org; +1 416 941 8083; Reuters Messaging: email@example.com))
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