C$ weakens to one-year low; Greek debt woes weigh

TORONTO: The Canadian dollar hit its weakest level against its US counterpart in more than a year on Monday as growing fears of a Greek default outweighed positive US economic news.

World stocks fell to a two-year low and the euro tumbled to its weakest level against the yen in more than a decade as worries about Greece unleashed anxiety about the impact on the global economy.

"News overnight that Greece wasn't going to be able to meet its obligations certainly put markets in a bit of a negative mood, and even though you had some stronger economic data in the ISM, that wasn't enough to alter sentiment," said David Tulk, chief Canada macro strategist at TD Securities.

"For time being we remain beholden to European headlines."

Athens admitted it will miss its deficit target of 7.6 percent this year, making a Greek debt default look more likely.

The Canadian dollar ended the North American session at C$1.0511 to the US dollar, or 95.14 US cents, down from Friday's close at C$1.0482 to the US dollar, or 95.40 US cents.

It fell as low as C$1.0534, its weakest level since Sept.

3, 2010.

Tulk said the absence of important Canadian economic data until the closely watched employment report on Friday suggests the Canadian currency will follow global market sentiment in the next couple of days, trading in a relatively tight range between C$1.0450 and C$1.0550.

Canadian and US stock indexes fell more than 2 percent as financial shares weighed, eclipsing an early boost from better-than-expected US manufacturing data.

Bank shares were battered in Europe as investors feared the impact of a Greek default on holders of the country's bonds, such as Franco Belgian financial group Dexia, whose stock slumped more than 10 percent.

US factory activity expanded at a faster pace than expected in September as production and hiring increased, a report by the Institute for Supply Management (ISM) showed, suggesting Canada's largest trading partner may escape sinking back into recession.

"It suggests that sentiment may be weaker than the actual economic data," Benjamin Reitzes, economist at BMO Capital Markets.

A separate report out on Monday showed Canadian manufacturing activity picked up pace for a third straight month in September, adding to hope the economy will avert another recession.

Bond prices were higher across the curve. The two-year Canadian government bond was up 8 Canadian cents to yield 0.845 percent, while the 10-year bond gained 75 Canadian cents to yield 2.072 percent.

Copyright Reuters, 2011