* Bond prices mixed across curve
* In U.S. Congress, Republican debt plan faces close vote
* US jobless claims fall below 400,000 level
By Claire Sibonney
TORONTO, July 28 (Reuters) - The Canadian dollar edged slightly higher against its U.S. counterpart on Thursday after U.S. jobless claims data came in better than expected, while investors also awaited a crucial vote in the United States later in the day on a bill to cut the deficit.
New U.S. claims for unemployment benefits dropped below the key 400,000 level for the first time since early April, pointing to some labor market improvement for Canada’s largest trading partner. [nN1E76Q1FC]
The gains were limited, however, by mounting concerns about a U.S. debt default that had dragged global stocks down to their lowest in more than a week and driven the greenback to a record low against the safe-haven Swiss franc. [MKTS/GLOB]
The stalemate in Washington over lifting the debt ceiling by an August 2 deadline is increasing the possibility of a U.S. credit rating downgrade and has raised the prospect that the government of the world’s leading economy will run out of money to pay its bills. [nN1E76R004]
“The closer we get to August 2, the greater the chance that the government will shut down for a few days in Washington,” said Sebastien Lavoie, economist at Laurentian Bank Securities in Montreal.
“That’s why I think we’re seeing a bit more stress out there by looking at some — but not all — financial indicators and perhaps that’s what’s needed for politicians in Washington to react.”
The Canadian dollar has attracted more foreign investors in recent weeks as buyers look for an alternate safe-haven in commodity-linked currencies. However, this has stalled in the past few sessions as investors focus on its close ties to the struggling U.S. economy.
Lavoie said the possibility of government shutdown in the United States would prompt fears of a recession there that could put the Canadian currency in the cross-fire.
At 8:40 a.m. (1240 GMT), the Canadian dollar CAD=D4 stood at C$0.9461 to the U.S. dollar, or $1.0570, up from Wednesday’s North American session close at C$0.9489 to the U.S. dollar, or $1.0539.
Lavoie said C$0.95 versus the U.S. dollar, or 1.05, was holding in well as short term-support.
He pointed to more upside for the Canadian dollar than downside in the near term, as recent comments from the Bank of Canada that raised expectations for a rate hike to come as soon as the fall.
Looking ahead, markets will be eyeing U.S. pending home sales later in the morning, and GDP figures on both sides of the border on Friday.
Canadian bond prices were mixed across the curve.
The two-year Canadian government bond CA2YT=RR was down half a Canadian cent to 1.475 percent, while the 10-year bond CA10YT=RR rose 14 Canadian cents to yield 2.862 percent.
Reporting by Claire Sibonney, Editing by Chizu Nomiyama