Canada’s dollar gained the most in more than two months versus its U.S. counterpart as optimism that European officials will agree a plan to recapitalize the region’s banks sparked advances in higher-yielding assets. The currency strengthened along with commodity-linked peers the Australian and New Zealand dollars as crude oil futures topped $86 a barrel and stock markets in Europe and North America rose. The greenback and yen were among the worst performing of the 16 most-traded currencies against the Canadian dollar. “This little run may have some legs,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal, in a telephone interview. “The Canadian dollar may take a run at parity,” he said, referring to a one-for-one valuation with the U.S. dollar. The Canadian currency advanced 1.6 percent to C$1.0138 per U.S. dollar at 1:04 p.m. in Toronto, the biggest increase since Aug. 9. One Canadian dollar buys 98.66 U.S. cents. The Standard & Poor’s 500 Index gained 1.9 percent in New York as benchmark gauges in France, Germany and Italy surged more than 2 percent. Canada’s benchmark Standard & Poor’s/TSX Composite Index climbed 1.7 percent. Canadian government bonds dropped, pushing the 10-year yield higher by 12 basis points, or 0.12 percentage point, to 2.41 percent, the sixth straight increase. Ten-year yields reached a record low 1.994 percent on Oct. 4. They trade at about 15 basis points above U.S. 10-year yields, compared with 31 basis points on Oct. 3. Home Prices Canada’s new-home price index rose for a fifth month in August led by a gain in Toronto, the government statistics agency said. The index advanced 0.1 percent matching the July increase, Statistics Canada said today in Ottawa. The August increase was also the same as the median estimate in a Bloomberg survey with 14 responses. Canada’s currency will weaken to C$1.02 versus the U.S. dollar by year-end before rebounding to 98 cents by the end of 2012, according to the median forecast of 35 economists and analysts compiled by Bloomberg. The median forecast from a month ago was for the loonie to end 2011 at 98 cents per U.S. dollar. The loonie has declined 0.4 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The greenback is down 3.2 percent, while the yen has lost 4 percent. The euro rose as European Commission President Jose Barroso unveiled proposals on coordinating bank recapitalizations across the European Union. EU and International Monetary Fund officials indicated yesterday that Greece will get an 8 billion-euro ($11 billion) loan next month. Germany and France pledged to draw up a plan by early November. “There’ve been a lot of comments from European officials promising to increase the EFSF, and just maintaining their commitment to these bailouts,” BMO’s Jespersen said, referring to the European Financial Stability Facility. “That was seen as very positive news.” To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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