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CANADA FX DEBT-Canadian dollar slides by most in two months as stocks slump

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    * Canadian dollar falls 0.7% against the greenback
    * Canada's trade deficit widens to C$2.45 billion in July 
    * Price of U.S. oil settles 0.3% lower
    * Canada's 10-year yield touches a three-week low at 0.518%

    By Fergal Smith
    TORONTO, Sept 3 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday as Wall Street's main
indexes tumbled and data showed a widening in Canada's trade
deficit, with the loonie posting its biggest decline in more
than two months.
    The loonie        was trading 0.7% lower at 1.3130 to the
greenback, or 76.16 U.S. cents, which was its largest sell-off
since June 24. The currency, which notched a near eight-month
high of 1.2990 on Tuesday, traded in a range of 1.3040 to
1.3161.
    "The Canadian dollar has been a proxy for risk assets since
the middle of March," said Andrew Cherry, head of global markets
at HSBC Bank Canada. "With the equity market being off today ...
it sets up that story where I think CAD is going to have a bit
of a selloff going forward in the near term."
    U.S. equity markets headed for their worst day since June as
investors dumped high-flying technology-focused stocks.
            
    Canada runs a current account deficit and is a major
producer of commodities, including oil, so the loonie tends to
be sensitive to the global flow of trade and capital.
    U.S. crude oil futures        settled 0.3% lower at $41.37 a
barrel as U.S. unemployment data fed fears of a slow economic
recovery.                           
    Canada posted a trade deficit of C$2.45 billion in July as
imports climbed faster than exports, data from Statistics Canada
showed. June's deficit was revised lower to C$1.59 billion.
            
    Canada's employment report for August is due on Friday,
which could offer clues on the strength of economic recovery.
    Canadian government bond yields eased across much of a
flatter curve in sympathy with U.S. Treasuries. The 10-year
            fell 2.1 basis points to 0.530%, having touched its
lowest intraday level since Aug. 11 at 0.518%.

 (Reporting by Fergal Smith; Editing by Andrea Ricci and Richard
Chang)
  
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