CANADA FX DEBT-C$ touches 1-week low, tracks falling equities
* C$ at C$0.9988 vs US$, or $1.0012 * U.S. equities fall as 'fiscal cliff' in focus * Canada and U.S. trade deficits narrow on increased exports * Canadian housing starts fell in October * ECB holds interest rate steady By Solarina Ho TORONTO, Nov 8 (Reuters) - Canada's dollar retreated to its weakest level against its U.S. counterpart in more than a week on Thursday, tracking declining U.S. and Canadian equity markets, as investors largely overlooked a mixed bag of North American economic data. Wall Street's three major indexes were lower on Thursday, as investors continued to adjust for upcoming negotiations over the "fiscal cliff," which overshadowed a batch of positive economic data. Both Canadian and U.S. stocks were hit hard in the previous session over worries Washington may not reach a deal in time to avoid the "fiscal cliff." "Canada is still extremely highly correlated to the S&P ... The correlation is still somewhere over 80 percent. They pretty well run in tandem. For now, it just looks like Canada is tracking the equity markets," said Darcy Browne, managing director, foreign exchange sales at CIBC World Markets. By early afternoon, the Canadian dollar traded at C$0.9988 to the U.S. dollar, or $1.0012, weaker than Wednesday's North American close of C$0.9961, or $1.0039. Earlier in the session, Canada's dollar touched a one week low of C$0.9995, or $1.0005. "We're still running into really good selling interest around this parity level, maybe slightly above," Browne added. The Canadian dollar was underperforming against most major currencies around midday, including the euro, which had touched a two-month low against the U.S. dollar after the European Central Bank kept interest rates at a record low and said the region's economy showed little signs of recovering before the end of the year. In economic news, Canada's trade deficit fell unexpectedly in September as exports increased and imports were unchanged, Statistics Canada data indicated. Trade is a major driver of Canada's economy and analysts cite the problems faced by exporters, such as a strong Canadian dollar and weak foreign markets, as reasons for sluggish growth in recent months. "The currency doesn't want to garner any kind of support from what ordinarily would be a positive report," said Michael Gregory, senior economist at BMO Capital Markets. Less positive for the Canadian economy was a report that showed Canadian housing starts fell in October as both single and multiple urban starts slumped. The Canada Mortgage and Housing Corp's report confirmed the country's once-booming housing market was slowing further. South of the border, the U.S. trade deficit narrowed last month as well on increasing exports, suggesting global demand for U.S. goods was holding up despite the debt crisis in Europe. "I think the market is keying in on other things. The big sell-off in equities yesterday shook the foundation of the market and people are watching that more than the numbers today," said Browne. Separately, Bank of Canada governor Mark Carney made no mention of domestic monetary policy or the Canadian dollar in a speech on Thursday. The price of Canadian government debt mostly fell across the curve. The two-year government of Canada bond fell 2 Canadian cents to yield 1.088 percent, while the benchmark 10-year bond shed 4 Canadian cents to yield 1.749 percent.