By Frank Pingue
TORONTO, Dec 31 (Reuters) - The Canadian dollar ended lower against the U.S. currency on Monday in the last session of 2007, but still recorded a big gain for the year, including its first stint above parity in 31 years.
Domestic bond prices, with no Canadian economic data to consider until later in the week, followed the bigger U.S. market to a higher close.
The Canadian dollar ended at US$1.0087, valuing each U.S. dollar at 99.13 Canadian cents, down from Friday's close of US$1.0198, or 98.05 Canadian cents per U.S. dollar.
After rising to US$1.0240 overnight, the Canadian currency spent the North American session in a steady decline that left it at its lowest level in ten days.
But there was little concern with the slide as thinly staffed trading desks upped the chances for exaggerated currency moves ahead of the New Year's Day holiday on Tuesday.
"I think we'll probably get a better test in terms of the underlying strength for the Canadian dollar in the second half of this week as volumes start to increase," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
For the year, the currency rose about 17.5 percent against its U.S. counterpart, due largely to higher commodity prices, strong domestic data, merger-related interest, a weak greenback and higher domestic interest rates.
That gain included a torrid climb past parity with the U.S. dollar in September for the first time since 1976. It touched a modern-day high of US$1.1039 in November before retreating.
"For those that were cheering for a stronger (Canadian) dollar it was certainly a stellar year for the loonie," said Ferley. "But expectations are for a gradual depreciation of the Canadian dollar at least through 2008.
Ferley expects the currency to trickle lower, toward the low 90 U.S. cents level by the end of 2008, due to an easing in commodity prices and a less pessimistic outlook on the U.S. economy.
Canadian bond prices finished higher across the curve as dealers took their cue from the U.S. market, given the lack of any domestic data to influence trade.
Desire for bonds carried over from last week as U.S. data upped the chances of a U.S. Federal Reserve rate cut next month. Fears over the fallout from a global credit crisis also lured investors to the security of government debt.
The Canadian economic calendar is empty until the release of the industrial product price and raw materials price indexes for November on Jan. 4.
The two-year bond rose 5 Canadian cents to C$100.91 to yield 3.748 percent. The 10-year bond jumped 19 Canadian cents to C$100.07 to yield 3.990 percent.
The yield spread between the two-year and 10-year bond was 24.2 basis points, up from 24.0 basis points at the previous close.
The 30-year bond rose 28 Canadian cents to C$115.51 to yield 4.088 percent. In the United States, the 30-year treasury yielded 4.468 percent.
The three-month when-issued T-bill yielded 3.86 percent, down from 3.87 at the previous close. (Editing by Rob Wilson)