CANADA FX DEBT-C$ weakens as U.S. government shutdown drags on

Reuters

* C$ at C$1.0330 vs US$, or 96.81 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 weakened

against the greenback on Friday as investors were becoming more

anxious about the effects of the U.S. government shutdown, which

entered its fourth day.

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. Analysts say the longer the shutdown

continues, the more likely it is that negotiations between

Democrats and Republicans will lead to a deal that would involve

raising the debt ceiling.

Investors are also 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.

"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."

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.

With the government shut down, the U.S. report on nonfarm

payrolls report, one of the most important data releases for

markets, was not issued on Friday as scheduled.

At home, investors will get a reading on the pace of

purchasing activity in Canada for September at 10 am ET (1400

GMT). The index is expected to rise modestly from the previous

month.

The Canadian dollar was at C$1.0330, or 96.81 U.S.

cents, weaker than Thursday's close of C$1.0326, or 96.84 U.S.

cents.

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.

The government shutdown has also cast uncertainty on when

the Fed may start to reduce its monetary stimulus, which

currently stands at $85 billion a month.

Analysts were speculating any fiscal drag on the economy

could prevent the Fed from reducing those bond purchases as soon

as had been expected.

Prices for Canadian government bonds were lower across the

maturity curve. The two-year bond slipped 3.3

Canadian cents to yield 1.197 percent, while the benchmark

10-year bond lost 22 Canadian cents to yield 2.570

percent.

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