* Ends at C$1.0625 per US$, or 94.12 U.S. cents
* Touches five-week low of C$1.0692, or 93.53 U.S. cents
* China move to tighten bank lending hits confidence
* Bond prices firm as investors flee risk
(Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Jan 26 (Reuters) - The Canadian dollar stumbled
versus the U.S. currency on Tuesday as investors shunned risky
assets, sparked by China's clampdown on lending and as Japan's
credit rating was put in the spotlight.
China's central bank ordered banks that need to raise their
reserve ratios to implement the change on Tuesday, banking
sources said [ID:nSGE60P039]. In recent weeks, China has moved
to cool bank lending to curb inflation and forestall asset
"The risk-aversion trade seems to be back in vogue. Markets
are focusing on things that have arisen over the past couple of
weeks, which include China continuing to cool down their
skyrocketing economy," said John Curran, senior vice-president
"People are looking to them to lead the recovery. If they
start to cut back, everyone else is going to have to cut back.
If we cut back while we're just starting to get out it's going
to dampen hopes and dampen the recovery."
Standard & Poor's added to the sour mood by warning it
would cut Japan's credit rating unless it produced a credible
plan to rein in its soaring debt. [ID:nSGE60P08I]
"Put together, they can have a destabilizing impact on risk
assets," said Millan Mulraine, economics strategist at TD
The Canadian dollar hugged a low of C$1.0692 to the U.S.
dollar, or 93.53 U.S. cents, its weakest level since Dec. 21.
But it fought back to finish at C$1.0625 to the U.S. dollar, or
94.12 U.S. cents, down from Monday's close at C$1.0581 to the
U.S. dollar, or 94.51 U.S. cents.
Aiding its move higher from its lowest level of the session
were steady U.S. stocks -- typically a yardstick of risk
appetite -- which were supported by data that showed U.S.
consumer confidence rose for a third straight month.
But market watchers said the policy and political landscape
would likely keep investors cautious this week, including news
on whether U.S. Federal Reserve Chairman Ben Bernanke would win
a U.S. Senate vote for a second term [ID:nN2699162], as well as
a rate announcement by the U.S. central bank on Wednesday.
Markets were also looking for guidance from U.S. President
Barack Obama's State of the Union address on Wednesday.
The price for oil, a key Canadian export, dropped below $75
a barrel as the China developments and weak U.S. home prices
data cast doubt over the pace of recovery. [O/R]
BOND PRICES FIRM
Government bond prices were firmer across the board, as
demand climbed on concern about a potentially slower growth
picture spurred by China's latest move. [US/]
"We have a flight from risk assets to the safety of
government bonds," said Mulraine.
The two-year bond <CA2YT=RR> was 3 Canadian cents higher at
C$100.15 to yield 1.170 percent, while the 30-year bond
<CA30YT=RR> rose 57 Canadian cents to C$117.07 to yield 3.971
Canadian bonds outperformed U.S. notes across the curve,
with the Canadian two-year bond 36.3 basis points above the
U.S. 2-year yield, compared with about 37 basis points in the
(Editing by Rob Wilso