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Loonie up as Fed chief stands behind central bank’s low-interest rate policies

By: Malcolm Morrison, The Canadian Press

Wednesday, Feb. 27, 2013 at 3:31 PM | Comments: 0

Canadian dollar coins, also known as "loonies, " are shown with U.S dollars in this April 6, 2010 photo in Montreal. THE CANADIAN PRESS/Ryan Remiorz

TORONTO - The Canadian dollar closed higher Wednesday as positive U.S. housing data and rising optimism in the durability of stimulus measures from the U.S. Federal Reserve helped traders put aside worries about the inconclusive results of Italy's election.

The loonie rose 0.32 of a cent to 97.75 cents US.

The greenback weakened as traders also took in a second day of Congressional testimony from U.S. Federal Reserve chairman Ben Bernanke. He sought to reassure Congress members that the central bank has a handle on the risks of the central bank’s aggressive program to buy US$85 billion a month in Treasurys and mortgage bonds.

As he did on Tuesday, Bernanke expressed confidence that the central bank’s low-rate policies currently pose little risk of causing runaway inflation or a stock market bubble.

Meanwhile, the National Association of Realtors said a measure of the number of Americans who signed contracts to buy homes rose in January from December to the highest level in more than two and a half years. Its seasonally adjusted index for pending home sales rose 4.5 per cent last month to 105.9.

Sales of previously occupied homes ticked up in January after rising to their highest level in five years in 2012.

The eurozone government crisis continued to be in focus after the centre-left alliance led by Pier Luigi Bersani narrowly won the lower house in Italy's elections, but failed to gain control of the upper house. It’s not clear what kind of coalition can be formed to give Italy a government that can pass legislation and carry on with the financial reform that markets have demanded.

The turmoil over the election results is already making itself felt in borrowing costs for Italy.

The country sold €4 billion in 10-year bonds at a yield of 4.83 per cent, way up from 4.17 per cent last month. The yield on five-year bonds rose to 3.59 per cent from 2.94 per cent, as €2.5 billion was auctioned.

Bond interest costs are a key measure of Europe’s effort to keep its debt problems in check. Higher rates mean more skepticism about an indebted country’s ability to pay.

On commodity markets, the April crude contract on the New York Mercantile Exchange shed early losses and edged up 13 cents to US$92.76 a barrel.

Prices moved to positive territory after data for the week ended Feb. 22 showed a rise in inventories of 1.1 million barrels, much less than the build of 2.6 million barrels that analysts expected.

April gold on the Nymex fell $19.80 to US$1,595.70 an ounce while May copper was down two cents at US$3.57 a pound.

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