* C$ finishes session at 94.27 U.S. cents
* Bonds rise in safe haven bid
* U.S. data, Europe fears add to recovery uncertainty (Updates to close, adds details, commentary)
By Claire Sibonney
TORONTO, Aug 25 (Reuters) - Canada's dollar held near seven-week lows against the greenback on Wednesday as weak U.S. economic data added to worries about the recovery, though a late rebound in commodity and equity markets cut most of the currency's early losses.
Morning figures showed new U.S. home sales slumped to their slowest pace on record in July and orders for costly durable goods were soft, heightening fears the economy was at risk of a new downturn. [ID:nN25121445]
The Canadian dollar crept as low as C$1.0669 to the U.S. dollar, or 93.73 U.S. cents, after the durable goods data, before building back up.
Later in day, bargain hunters in search of beaten-down assets boosted U.S. stocks to finish in positive territory, while oil settled higher above $72 a barrel, snapping five days of losses. [.N] [O/R]
"Since weakening early this morning (the Canadian dollar) started to strengthen throughout the day at a slow pace," said Camilla Sutton, senior currency strategist at Scotia Capital.
"And it's been a similar story across asset classes, so we've seen oil move higher and equities make up for their losses early on."
The currency
However, Sutton pointed out that the general tone of the day was still downbeat.
"The overall developments were negative for the U.S. growth story and by default the Canadian growth story," she said.
"What we have going on right now is a somewhat unsynchronized recovery where emerging markets are still poised to do fairly well whereas developed markets or G3 are poised for sub-trend growth."
Overnight, risk aversion was fed by a one-notch downgrade to "AA-" of Ireland's long-term rating by credit agency Standard & Poor's on Tuesday. The downgrade reignited concerns about Europe, although a German Ifo business climate index climbed in August and exceeded expectations. [ID:nLDE67O0Y] [ID:nLDE67O0OB]
Looking to the overnight session and possibly to Thursday, Sutton said support and resistance for the Canadian dollar should rest between C$1.0580 to C$1.0695.
BONDS KEEP UP RALLY
Bond prices rallied on declining expectations of a third straight rate hike by the Bank of Canada next month. The central bank has raised rates twice since the start of June, but disappointing data has hit yields on overnight index swaps for the Sept. 8 decision.
Those yields, which trade based on market expectations for
the central bank's key policy rate, held around a 31 percent
chance of a rate hike, as calculated by Reuters.
The two-year bond
"The bond market has been a microcosm of excitement," said Eric Lascelles, chief Canada macro strategist at TD Securities.
"On an absolute basis, bonds are still awfully rich right now. Yields are still astonishingly low so the market is running into a bit of resistance to go much further."
However, Canada's auction of 30-year real return bonds met with lukewarm demand as investors were less convinced that lower-yielding inflation-protected debt was the place to be at a time of worry about anemic global economic growth. [ID:nN25138272]
"Fear of high inflation is off the table and fear of deflation, disinflation is on the rise, so real return bonds are not perceived to offer quite the safety that was once imagined," Lascelles added, noting that the once-popular real return bonds have underperformed nominal bonds over the last several months.
As well, the province of Ontario sold C$750 million in a reopening of existing 4.2 percent 10-year notes and the province of Prince Edward Island sold C$100 million of 3.7 percent 10-year notes. [ID:nN25120396] [ID:nN25128193] (Reporting by Claire Sibonney; editing by Rob Wilson)