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Dollar firmer,

bonds higher

in Canada

TORONTO: The Canadian dollar closed firmer on Thursday after US buying pushed the unit past a key technical level, but dealers said further gains will be restricted by mounting concern about the upcoming Quebec referendum.

A new Quebec poll on sovereignty could move the market, which is poised for volatility with the start of a referendum campaign on Quebec separation from the rest of Canada. A date has yet to be announced, but the vote is widely expected to be held on October 30.

He said the Canadian currency has been gaining on improvements in the US dollar following concerted intervention earlier this month, even though the Quebec question has prevented the unit from reaping major benefits. However, Quebec Premier Jacques Parizeau's conciliatory tone on trade at a provincial premiers' conference in Newfoundland afforded the market some encouragement, dealers said.

The Bank of Canada opted to keep interest rates unchanged despite a cut a German rates this morning. Many market players had expected such a move would prompt the Canadian central bank to ease its monetary policy.

The Bank of Canada set a round of special purchase and resale agreements at 6.75 percent, confirming its target for overnight money at 6.25-6.75 percent.

The Canada closed at C$1.3535 (US$0.7386) compared to C$1.3587 (US$0.7360) at Wednesday's close. On the crosses, the unit fell to 1.0950 marks from 1.0918 and sank to 71.44 yen from 71.65.

Canadian bonds rallied to a higher close after a round of market-friendly US data and a German interest rates cut, an analyst said.

"It was an interesting day," the analyst said. "The bond market ended higher on the strength of the US bond market."

Canada's 9.0 percent of 2050 rose C$1.33 to 104.70 to yield 8.559 percent against the US 30-year at 6.82 percent. The spread was 174 basis points.

Earlier, the German Bundesbank cut interest rates by 50 basis points, prompting hopes the Bank of Canada may drop interest rates as well, the analyst said. However the Bank of Canada did a round of special purchase and resale agreements at 6.75 percent, reconfirming its target for overnight rates.-Reuter