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Loonie rises, U.S. Treasury bond yields fall amid global economic concerns

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TORONTO - The Canadian dollar closed higher Thursday amid a better than expected reading on manufacturing shipments in March.

The loonie gained 0.05 of a cent to 91.94 cents US as Statistics Canada reported that manufacturing sales edged up 0.4 per cent to $50.9 billion, far better than the 0.1 per cent rise that economists had expected.

At the same time, economic worries helped push yields on the benchmark U.S. 10-year Treasury to a seven month low of 2.47 per cent amid economic worries and how sub-par economic performance could impact rising interest rates. By the end of the session, the yield was up to 2.5 per cent.

Data out Thursday showed the economic recovery in the European Union proceeding at a slower than expected pace.

Eurostat, the EU’s statistics office, said the economy of the 18 countries that share the euro saw economic output grow by only 0.2 per cent in the first quarter from the previous three-month period. The modest rise came despite a better than expected 0.8 per cent advance in Germany and was below economists’ expectations for a 0.4 per cent increase.

A large chunk of the blame for the underperformance can be placed on a flat performance in France, Europe’s second-largest economy behind Germany.

The figures are likely to strengthen arguments for the European Central Bank to cut interest rates and take further stimulus measure at its next meeting June 5.

The U.S. economy has also been a cause for concern. Data has showed the economy hardly grew at all in the first quarter and some analysts wonder if it actually contracted.

There have also been concerns about the strength of the Chinese economy and how well it will weather a slowdown in the housing sector.

"So, putting that all together shifts the focus in terms of growth to potentially things aren't as strong," said Camilla Sutton, chief FX Strategist, managing director, Scotiabank Global Banking and Markets.

"(Also), globally, many central banks including the U.S. Federal Reserve have really been trying to highlight that when rates do move higher, they are likely to move slowly and cautiously and I think the market has really just been interpreting and pricing that in."

Worries about weak conditions have also raised speculation that the Fed could delay hiking short-term rates.

"And we have seen that play out in some of the futures, in terms of the pricing of when the first Fed interest rate hike will come have pared back recently," added Sutton.

Markets have been expecting that the Fed to move on rates mid-2015.

Meanwhile, in the U.S., other data released Thursday showed that inflation is ticking up from very low levels. The U.S. Labor Department said the consumer price index rose 0.3 per cent last month after a 0.2 per cent gain in March. Over the past 12 months, prices have increased two per cent, the largest gain since July and matching the Federal Reserve’s inflation target.

On the commodity markets, June crude on the New York Mercantile Exchange fell 87 cents to US$101.50 a barrel.

July copper was two cents lower at US$3.14 a pound and June bullion dropped $12.30 to US$1,293.60 an ounce.

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