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Loonie nears four-week low, bonds rise as stocks sag

TORONTO (Reuters) - The Canadian dollar fell to almost a four-week low against the U.S. dollar on Wednesday as the price of oil and metals weakened and global equities slid on doubts about an economic recovery.

North American stocks sagged, following declines in the European and Asian sessions, as some investors unwound trades betting on quick economic recovery <MKTS/GLOB>. Typically, equity markets are an indicator of investors’ risk appetite.

The currency fell as low as C$1.1450 to the U.S. dollar, or 87.34 U.S. cents, before clawing back a portion of its decline.

“There’s a bit more of a moderate view in terms of the U.S. recovery taking hold. We’re seeing a bit more downward pressure on oil price and that’s getting reflected in the weakening in the Canadian dollar,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

At 11:30 a.m., the currency was at C$1.1393 to the U.S. dollar, or 87.77 U.S. cents, down from C$1.1346 to the U.S. dollar, or 88.14 U.S. cents, at Tuesday’s close.

A drop in oil prices to below $70 a barrel, as well as weaker gold and base metal prices, were also negative factors for the commodity-linked Canadian dollar.

Meanwhile, a summer federal election was avoided as Canada’s main opposition Liberal Party said it had struck a deal with Prime Minister Stephen Harper. The Liberals had threatened earlier this week to vote against the Conservative government’s budgetary estimates on Friday, a move that would have triggered an election and likely put some pressure on the currency.

BONDS RISE

Canadian bond prices inched higher on weak stock markets while U.S. consumer prices rose less than expected.

The U.S. consumer price index rose 0.1 percent last month, below an expected 0.3 percent gain. This resulted in the biggest year-over-year drop since 1950. The CPI core rate, which excludes volatile energy and food prices, was up 0.1 percent, matching analyst forecasts.

“A very benign report with the annual rate moving further into negative territory. It clearly allows the Fed to concentrate on keeping economic conditions accommodative,” said Ferley.

The benchmark two-year government bond rose 6 Canadian cents to C$99.85 to yield 1.328 percent, while the 10-year bond advanced 20 Canadian cents to C$102.75 to yield 3.421 percent.

The 30-year bond rose 15 Canadian cents to C$118.85 to yield 3.888 percent. The comparable U.S. issue yielded 4.442 percent.

Reporting by Ka Yan Ng; editing by Rob Wilson

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