C$ strongest since February as investors favor risk assets

TORONTO: The Canadian dollar strengthened about half a cent against the US dollar on Thursday and touched its strongest level in nearly two months, benefiting from signs of a growing recovery in China and Japan's aggressive monetary easing.

Canada's dollar held its gains as data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week. The figures eased fears of a marked deterioration in US labor market conditions after a surprise stumble in job growth in March.

Since the Bank of Japan unveiled a radical stimulus program a week ago, assets that benefit from stronger growth have rallied.

In addition to the Canadian dollar, the MSCI's world equity index has hit levels last seen in June 2008. Market sentiment has also taken the S&P 500 index to a record high.

The market's latest gains have been helped by evidence of an economic recovery in China, notably signs of growing domestic demand and easier credit, and also by indications from the European Central Bank last week that it may cut rates.

"It's basically a risk-asset move ... you're seeing equity (markets) firmer as well. And there has been good correlation between the Canadian dollar and the risk-on move," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.

Chandler noted Canada's fellow commodities-linked currency, the Australian dollar, held on to gains against the US dollar despite a dismal employment report.

At 8:57 a.m. (1357 GMT), the Canadian dollar was trading at C$1.0103 versus the US dollar, or 98.98 US cents. This was stronger than Wednesday's North American finish at C$1.0144, or 98.58 US cents.

Earlier in the session, the currency touched C$1.0084, its strongest performance against the greenback since Feb. 18.

The Canadian dollar's performance was mixed against other currencies. It was outperforming the Australian dollar , but under performing the Japanese yen and the New Zealand dollar, where it touched its weakest level since mid-2005.

The price of Canadian government debt was mixed, with the two-year bond falling less than half a Canadian cent to yield 0.995 percent and the benchmark 10-year bond rising 10 Canadian cents to yield 1.794 percent.