* C$ lower at C$1.0614 to the U.S. dollar
* Bond prices mixed, weaker on short end of curve
(Updates to close)
By Cameron French
TORONTO, Dec 15 (Reuters) - The Canadian dollar ended
slightly lower versus its U.S. counterpart on Tuesday as
stronger oil prices could not offset the impact of strong U.S.
inflation data, which fueled talk of higher U.S. interest rates
and boosted the greenback.
Optimism over North American economic prospects gave both
currencies a lift versus the yen and the euro, particularly due
to concerns over the health of euro zone banks.
"It's kind of a buy-North American theme we've been
seeing," said George Davis, chief technical strategist at RBC
Capital Markets, characterizing the interplay between the
Canadian and U.S. dollar as a tug-of-war.
"The market's been focused on the better-than-expected data
in the U.S., but at the same time, because of the trade
relationship with the U.S., there's been some positive spin for
the Canadian dollar as well," he said.
The Canadian unit ended the session at C$1.0614 to the U.S.
dollar, or 94.22 U.S. cents, down from Monday's close at
C$1.0593 to the U.S. dollar, or 94.40 U.S. cents.
The currency hit the day's low of C$1.0652, or 93.88 U.S.
cents, early in the session as robust U.S. producer prices data
sparked chatter the U.S. Federal Reserve could raise interest
rates sooner than expected.
Rising oil prices helped the Canadian dollar rebound as the
session progressed, as crude futures gained just under 2
percent on the day, after declining for most of the past two
Traders will be keeping a close eye on Canadian
manufacturing and inflation data over the next two days, but
those reports could be overshadowed by the results of the U.S.
Federal Reserve meeting on Wednesday as the market will look
for any hints about the timetable for possible rate hikes.
Both the Fed and the Bank of Canada have said rates should
stay low for the next while, but strong data has raised
concerns about inflation and sparked questions as to whether
the Fed will stick to its pledge.
"I think the general trend of U.S. dollar strength is
likely to continue at least through the Fed tomorrow," Davis
Canadian bond prices were mixed, falling on the short end
of the yield curve to follow weaker U.S. Treasuries. Canadian
stocks eased very slightly, exerting little influence on
government debt prices.
The two-year Canadian government bond <CA2YT=RR> fell 5
Canadian cents to C$99.93 to yield 1.286 percent, while the
10-year bond <CA10YT=RR> rose 1 Canadian cent to C$102.79 to
yield 3.402 percent.
Canadian bonds put in mixed performance against Treasuries,
with the 10-year yield spread widening to 18.9 basis points
below its U.S. counterpart from 15 basis points the previous
(Reporting by Cameron French; editing by Peter Galloway)