source: www.bloomberg.com

By Chris Fournier

Nov. 24 (Bloomberg) -- Canada’s currency strengthened for a second day after global stocks gained, buoyed by a bailout of Citigroup Inc. and speculation that governments will move to stimulate faltering economies.

“The stock market obviously likes the Citibank bailout,” said Aaron Fennell, a Toronto-based futures and currency broker at MF Global Canada Co., a unit of MF Global Ltd., the world’s largest broker of exchange-traded futures and options. “The stock market is up, which gives the impression that the U.S. economy is a bit stronger and boosts the Canadian dollar.”

The Canadian dollar appreciated as much as 3.5 percent to C$1.2244 per U.S. dollar, from C$1.2668 on Nov. 21 when it gained 2.3 percent. It traded at C$1.2344 at 4:05 p.m. in Toronto. One Canadian dollar buys 81 U.S. cents.

The loonie, as Canada’s dollar is known because of the aquatic bird on the one-dollar coin, will strengthen to around C$1.15 in the coming weeks, Fennell said.

“Short-term trends have turned abruptly against the U.S. dollar and in favor of the Canadian dollar,” Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, wrote in a note to clients. Osborne predicts “ongoing corrective pressure” will drive the Canadian dollar back to the C$1.20 to C$1.22 “corrective retracement targets.”

Europe’s Dow Jones Stoxx 600 Index climbed 8.4 percent. London’s FTSE 100 Index added 9.8 percent, the most on record. The Standard & Poor’s 500 Index gained 6 percent. Crude oil for January delivery rose $4.68, or 9.4 percent, to $54.61 a barrel. Crude accounts for about a tenth of Canada’s exports.

Citigroup, which has $2 trillion of assets and operations in more than 100 countries, received $306 billion of U.S. government guarantees.

‘Positive Developments’

“Positive developments at Citibank were the main catalyst for stocks to rally today,” said Adam Cole, global head of foreign-exchange strategy at the Royal Bank of Canada in London. Speculation “remains rife” that an economic stimulus plan will be in place by the time President-elect Barack Obama takes office on Jan. 20, Cole added.

Senator Charles Schumer, Democrat from New York, said yesterday on ABC’s “This Week” program that the stimulus package will be between $500 billion and $700 billion.

Stimulate the Economy

Canadian Prime Minister Stephen Harper said yesterday that if necessary the country would run a “short-term” deficit to stimulate the economy. Finance Minister Jim Flaherty said he will cut taxes to boost economic growth as the world’s eighth-largest economy heads for a possible recession.

Statistics Canada will release retail sales data tomorrow at 8:30 a.m. in Ottawa.

The yield on the two-year government bond rose as much as five basis points, or 0.05 percentage point, to 1.86 percent. It last traded at 1.83 percent. The price of the 2.75 percent security due in December 2010 fell 3 cents to C$101.84.

The 10-year note’s yield increased 3 basis points to 3.50 percent. The price of the 4.25 percent security maturing in June 2018 declined 23 cents to C$106.07.

The decline in bond prices “is occurring globally,” said Derek Holt, an economist at Scotia Capital Inc. in Toronto. “Weekend chatter about fiscal stimulus is at the heart of it.”

The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers, according to data tabulated by Bloomberg News.

The 10-year bond yielded 167 basis points more than the two- year security. The so-called yield curve reached 184 basis points on Nov. 6, the steepest since May 2004.

The yield advantage of Canadian government bonds compared with similar-maturity 10-year U.S. Treasury notes was 15 basis points. The U.S. security yielded 39 basis points more than its Canadian counterpart on June 25, the most this year.

Canadian government bonds have returned 6.3 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 9.1 percent this year.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Last Updated: November 24, 2008 16:07 EST