CANADA FX DEBT-C$ falters on Greece worries

* C$ touches weakest level since Jan. 25
    * Ends at C$1.0127 vs US$, 98.75 U.S. cents
    * Worries about euro zone hit global markets
    * Bond prices move higher across the curve

    By Jennifer Kwan	
    TORONTO, May 16 (Reuters) - The Canadian dollar skidded
against its U.S. counterpart o n W ednesday as broader uncertainty
over Greece's future in the euro zone weighed on global equity,
commodity and currency markets.	
    The Canadian dollar, which touched a 16-week low of
C$1.0131, or 98.71 U.S. cents, against the greenback, moved in
tandem with the euro on news the European Central Bank has
stopped funding operations for some Greek banks. 	
    The euro dropped to a four-month low against the U.S. dollar
o n W ednesday, sliding for a fourth consecutive session and
likely to face more losses on fears about a Greek exit from the
euro zone. 	
    "The Canadian dollar is pretty much focused on concerns
around European issues," said Greg Moore, FX Strategist at TD
    The Canadian dollar ended at C$1.0127 versus the
U.S. dollar, or 98.75 U.S. cents, below Tuesday's North American
session close at $1.0068, or 99.32 U.S. cents. Canada's currency
underperformed most of its G10 currency cousins, including the
Australian dollar and Japanese yen.	
    Earlier, the Canadian dollar had risen as high as C$1.0053
against the greenback after U.S. housing starts data, as well as
a stronger-than-expected Canadian manufacturing report.
    But those data points "could only support the Canadian
dollar in this risk-averse environment for so long," said Moore,
who sees the currency trading in the near-term in a range of
C$1.0050-60 and C$1.0150-70 against the U.S. dollar.	
    Markets were largely guided by worries about the euro zone.
Fears that a Greek exit from the euro zone will worsen the debt
crisis facing other European nations gripped financial markets
on Wednesday. 	
    A Greek departure from the euro zone would have a
potentially huge knock-on effect on struggling economies such as
Italy and Spain, whose bond yields climbed above the crucial 6
percent mark in the previous session.	
    "The problems in Europe are certainly escalating and causing
a lot of stress in the markets and I think the Canadian dollar
will unfortunately be sideswiped," said Blake Jespersen,
managing director of foreign exchange sales at BMO Capital
    Overnight, the currency slipped as far as C$1.0131, or 98.71
U.S. cents, its weakest level since Jan. 25.	
    Over the next month, Jespersen said the Canadian dollar
could tumble as far as C$1.03.	
    Concerns about Europe were also reflected in the Canadian
bond market, where prices moved higher across the curve as
investors fled risk and sought safety in government debt.	
    A "slightly more dovish tilt" to the minutes of the U.S.
Federal Reserve also impacted performance in Canadian bonds,
said Ian Pollick, fixed-income strategist at RBC Capital
    Several Federal Reserve policymakers last month thought it
may need to do more to help the recovery if it stumbles, but
there was almost no support for extending the central bank's
"Operation Twist" program, due to end in June. 	
    The two-year government bond edged up 3 Canadian
cents to yield 1.275 percent, while Canada's 10-year bond
 gained 10 Canadian cents to yield 1.926 percent.	
    Canada's C$3.3 billion auction of 2-year bonds yielded an
average 1.313 percent, the highest since July. The bid-to-cover
was 2.8, the highest since at least 2010, according to Thomson
Reuters data. 	
    "I wouldn't say it was a screamer, but I would say it was a
solid auction," said Pollick.