CANADA FX DEBT-C$ hits 8-month low on Italian election worries

* C$ at C$1.0276 vs US$, or 97.31 U.S. cents
    * Worries over Italian election outcome hit stocks, euro
    * Carney reiterates bank view that rates must rise in time
    * Two-year bond yield at 7-month lows
    * 10-year bond yield near 2013 lows

    By Solarina Ho
    TORONTO, Feb 25 (Reuters) - The Canadian dollar weakened to
eight-month lows against its U.S. counterpart on Monday,
tracking equity markets and the euro lower as investors worried
that this week's Italian elections will produce a divided
parliament that will hobble the country's economic reform
    The European news overshadowed a speech and news conference
by Bank of Canada Governor Mark Carney, in which he reiterated
that the next move for the country's interest rates is likely to
be higher. 
    Global markets and the euro fell after projections indicated
none of the four main groups running in the Italian
parliamentary election is likely to win a majority in the
    The outcome of the election is expected to hold the key to
whether the current reform program in the euro zone's
third-largest economy will continue uninterrupted. 
    "Another election opens up the possibility than an anti-euro
party could come into power and that would definitely be a
negative for euro and for pretty much all global assets, so
you're seeing that today in the Canadian dollar," said Benjamin
Reitzes, senior economist and foreign exchange strategist at
BMO. "We're just following suit here."
    The Canadian dollar closed at C$1.0276 versus the U.S.
dollar, or 97.31 U.S. cents, weaker than Friday's North American
session close at C$1.0208, or 97.96 U.S. cents.
    The currency at one point hit C$1.0278, its weakest level
since June 29.
    The currency's weakness followed dismal Canadian retail
sales and inflation numbers last week. Analysts said data later
this week, including a report on the current account on Thursday
and GDP data on Friday, could add to the gloom surrounding the
currency's outlook. 
    "The market's looking for another reason to take the
Canadian dollar weaker at this point and we may get it as the
week wears on," said Darcy Browne, managing director at CIBC's
Capital Markets Trading.
    He added that the Canadian dollar could move to C$1.04 to
C$1.05 against the greenback over the medium term.
    Last week's data further trimmed the likelihood that the
Bank of Canada will raise interest rates this year. 
    Canadian interest rates are at a near-record low 1 percent.
The Bank of Canada has said since early last year its next move
is likely to be a rate increase, making it the only Group of
Seven central bank with a tightening bias.
    The weak economic data prompted some speculation the central
bank could drop that tightening bias. But Carney's comments
seemed to suggest the bank favors the status quo for now, said
Benjamin Reitzes, a senior economist and foreign exchange
strategist at Bank of Montreal
    "He still said that rates will still eventually have to go
higher ... there's no reason to believe they're going to change
things materially at this point," Reitzes said.
    The Canadian dollar's performance was mixed against other
major currencies, weakening against Australia's fellow
commodities-linked dollar, but firming against the slumping
    Government bond prices rose across the curve, tracking U.S.
Treasuries. The price of a two-year Canadian government bond
 climbed 10 Canadian cents, yielding 1.019 percent,
its lowest level in seven months. The benchmark 10-year bond
 jumped 53 Canadian cents, yielding 1.883 percent,
its lowest level since the beginning of this year.