* C$ rises to 99.94 U.S. cents, hits parity briefly
* Gains made on low volumes
* Global stock gains boost risk appetite
* Bond prices erase early losses
TORONTO, Dec 29 (Reuters) - The Canadian dollar pushed
above parity with the U.S. dollar for a second day on
Wednesday, testing the psychologically-key level in quiet
The Canadian dollar hit a high of 99.75 Canadian cents to
the U.S. dollar, matching the level it hit on Tuesday, its
highest since late April. Canada's stock market was shut on
Tuesday for an extended holiday break and most local currency
and bond traders were also away.
The Canadian dollar hovered around parity for much of the
session as a rise in global stock prices on expectations of
stronger economic growth in 2011 lifted investors' appetite for
higher-yielding currencies. [FRX/]
"You're starting to see there's a lot of interest around
that very level," said David Tulk, senior macro strategist at
TD Securities, referring to intraday corporate flows.
"I think you would see testing (of parity) going on for at
least the next couple of days."
The Canadian dollar finished at C$1.0006 to the U.S.
dollar, or 99.94 U.S. cents, up from Friday's close at C$1.0064
to the U.S. dollar, or 99.36 U.S. cents. Canadian markets were
also shut on Monday.
"It's just a flow that probably would have gone through
over the past couple of days that is now all going through the
market, and you back that up with some illiquidity and we're
getting a fairly substantial bounce," said David Watt, senior
currency strategist at RBC Capital Markets.
The Canadian dollar has reached a one-for-one footing with
the U.S. currency a handful of times this year, but never held
at that level for long.
Monthly foreign exchange surveys by Reuters have
consistently found forecasters expect the Canadian dollar to
hover near par with the greenback next year, partly as a result
of sturdy commodity prices. [CAD/POLL]
Forecasts of interest rate increases from the Bank of
Canada next year are also supporting the currency, with a
widening spread over U.S. interest rates seen attracting
Canadian bond prices erased losses, helped by a strong U.S.
seven-year note auction.
Tulk said there was some concern ahead of the auction that
demand would be soft given holiday-thinned trade. But the
auction spurred a rally in U.S. government debt, and, to a
lesser degree, Canadian government bonds.
The two-year bond
reversed early losses, rising
2 Canadian cents to yield 1.681 percent. The 10-year bond
rose 2 Canadian cents to yield 3.166 percent.
Canadian government bonds put in a mixed performance against
their U.S. counterparts.
(With additional reporting by John McCrank; editing by Jeffrey