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Loonie rises amid positive European data, greenback mixed ahead of Fed meeting

TORONTO - The Canadian dollar closed higher Monday as commodity prices advanced amid strong U.S. and European factory data.

The loonie rose 0.08 of a cent to 94.46 cents US with the greenback mixed against other currencies ahead of the U.S. Federal Reserve's meeting Wednesday when markets may find out if the central bank will start to taper its monthly US$85 billion of bond purchases.

Speculation about Fed intentions has grown considerably over the past couple of weeks amid strong economic data, particularly a solid employment report for last month. Also, a bipartisan committee struck a U.S. congressional budget bill, which would remove the threat of another government shutdown.

But opinion is split on what the Fed will do.

"Our U.S. analysts weigh in against the notion of a taper announcement this week," said Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities, adding they are looking for the Fed to start cutting back on asset purchases in March.

Oil prices rose amid a pair of strong economic reports from the U.S. and Europe.

In the U.S., factory production rose 0.6 per cent November, led by a surge in auto output.

Other data showed economic activity in the eurozone picked up in December. Financial information company Markit says its Purchasing Managers Index beat expectations, rising to a 31-month high of 52.7 from 51.6 in November. At the same time, the services PMI slipped to a four-month low of 51 from 51.2.

The January crude oil contract on the New York Mercantile Exchange gained 88 cents to US$97.48 a barrel.

The March copper contract edged up two cents to US$3.33 a pound while February gold added $9.80 to US$1,244.40 an ounce as traders weighed the chances of Fed easing.

Other data showed that China's manufacturing sector grew at a slightly slower pace in December, according to a preliminary survey by HSBC. Its flash purchasing managers' index slowed to a three-month low of 50.5.

However, the reading was still high enough to indicate that China's economy is continuing to recover since slowing to 7.5 per cent growth in the second quarter.

The Canadian Press


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