CANADA FX DEBT-C$ firms but kept to range by U.S. government shutdown

Reuters

* C$ at C$1.0292 vs US$, or 97.16 U.S. cents

* U.S. gov't shutdown in 4th day, raises debt ceiling

concerns

* Bond prices lower across curve

By Leah Schnurr

TORONTO, Oct 4 (Reuters) - The Canadian dollar strengthened

on Friday though the currency remained in a range as investors

worried that a four-day government shutdown in the United States

was bringing lawmakers closer to a potentially more urgent

deadline to raise the debt ceiling.

A political impasse over the U.S. budget has shut down

non-essential government services and appeared likely to drag on

for another week or more.

Investors are concerned about what impact the standoff will

have on a still-fragile economic recovery. Analysts said a

shutdown that drags on longer than a few days will start to bite

into economic growth in the United States, Canada's biggest

trading partner.

"So many Canadian officials ... have highlighted the strong

relationship and correlation between Canadian prosperity and

that of the U.S.," said Gareth Sylvester, director at Klarity FX

in Los Angeles.

"It almost puts you in the same basket that if we feel that

U.S. growth is going to be adversely affected by this government

shutdown, then certainly that's going to impact Canada."

Analysts say the longer the shutdown continues, the more

likely it is that negotiations between Democrats and Republicans

will lead to a larger deal that would involve raising the debt

ceiling.

U.S. lawmakers must raise the government's $16.7 trillion

debt borrowing limit by mid-October, or the United States will

be facing default.

"The market is getting a wee bit more apprehensive as we

draw closer to the all-important mid-October date for the debt

ceiling," said Dean Popplewell, chief currency strategist at

OANDA.

"There's too much at stake here, not just for the United

States but globally."

The Canadian dollar ended the session at C$1.0292,

or 97.16 U.S. cents, stronger than Thursday's close of C$1.0326,

or 96.84 U.S. cents. The U.S. dollar, traditionally seen as a

safe haven, rose 0.5 percent against a basket of currencies

.

Following a brief spike after the U.S. Federal Reserve's

decision to stand pat on its economic stimulus program on Sept.

18, the Canadian dollar has been trading in a tight range.

Barring a resolution or other catalyst, Sylvester sees the

loonie trading in a range between C$1.0280 and C$1.0340.

"There's very little evidence right now in the near term to

argue we're going to see a directional break from those ranges,"

he said.

With the government shut down in Washington, the U.S. report

on nonfarm payrolls, one of the most important data releases for

markets, was not issued on Friday as scheduled.

At home, data showed the pace of purchasing activity in

Canada picked up modestly in September as employment rebounded.

Prices for Canadian government bonds were lower across the

maturity curve. The two-year bond slipped 2.8

Canadian cents to yield 1.194 percent, while the benchmark

10-year bond lost 33 Canadian cents to yield 2.584

percent.

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