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Canada’s Dollar Falls From Month High as Draghi Saps Risk Demand

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Dec. 8 (Bloomberg) -- Canada’s dollar fell for the first time in four days on concern a lack of resolution for Europe’s debt crisis will slow global growth, sapping demand for higher-yielding assets.

The loonie, as Canada’s dollar is also known, dropped from the highest level in a month against its U.S. counterpart and fell against most of the other major currencies after European Central Bank President Mario Draghi damped speculation that more purchases of euro-area bonds are imminent. Canada’s 10-year note yield fell to a record low of 1.979 percent as investors sought a refuge.

“The realization gripped the market than it terms of liquidity, the central banks was there, but would do very little further in terms of funding or bond purchases that has weighed on risk assets as well as the Canadian dollar,” said Stewart Hall, senior currency strategist at Royal Bank of Canada in Toronto. “The market is looking for some signs of a credible fence to cordon off the crisis, and it didn’t get a heck of a lot from the ECB.”

Canada’s currency depreciated 1.3 percent to C$1.0232 per U.S. dollar 5 p.m. in Toronto. One Canadian dollar buys 97.78 U.S. cents. The loonie earlier touched C$1.0052, the strongest level since Nov. 1.

Yields on 10-year notes fell to a record low 1.979 percent, dropping as much as eight basis points, or 0.08 percentage point. The price of the 3.25 percent securities maturing in June 2021 increased 57 cents to C$110.81.

Stocks Stumble

Draghi roiled the markets, with the Canadian dollar rising along with stocks on bank-lending measures he described before falling after he said he didn’t signal more bond purchases.

Canadian stocks fell as the Standard & Poor’s/TSX Composite Index fell 1.6 percent, to 11,949.05 in Toronto.

French President Nicolas Sarkozy called on European Union leaders to summon the “courage” to end the sovereign-debt crisis at a two-day summit that began today, saying that there won’t be a second chance to save the euro.

“There is much more downside risk on the horizon and thus for the Canadian dollar as we are still a long way off from any permanent solution in Europe,” said Maria Jones, a currency trader in Toronto at Toronto-Dominion Bank’s TD Securities unit. “The markets are waiting to see what comes out of the EU meeting.”

The Frankfurt-based ECB reduced its benchmark rate by a quarter-percentage point to 1 percent today, matching a record low. It pledged for the first time to offer banks unlimited cash for three years and loosened the collateral rules it imposes when lending to financial institutions.

Housing Starts

“The currency has been a relative outperformer of late, but sustainable strength in the loonie will only come with a better resolution to the euro zone’s problems,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto.

Canadian housing starts fell the most in November since April 2009, a report from the federal government’s housing agency showed.

Work began on 181,100 new dwellings at a seasonally adjusted annual pace last month, a decline of 13.3 percent, Canada Mortgage & Housing Corp. reported from Ottawa today. Economists forecast a reading of 200,000 according to the median of 21 responses to a Bloomberg News survey.

“The Canadian data was not very strong,” Jones said. “But today’s currency move is all about Europe.”

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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