* Canadian dollar at C$1.3736, or 72.80 U.S. cents
* Bond prices higher across the yield curve
* 2-year spread versus Treasuries hits widest gap in 10
TORONTO, May 11 The Canadian dollar weakened on
Thursday against its U.S. counterpart as a ratings downgrade for
the country's major banks offset higher oil prices.
Moody's Investor Service on Wednesday downgraded the
long-term ratings for six Canadian banks, pointing to rising
domestic consumer debt and the country's elevated housing prices
that leaves lenders more vulnerable to a slowdown in the
Speculators had already become bearish on the Canadian
dollar in the face of depressed oil prices and a more uncertain
trade outlook with the United States. The trade where investors
selling Canadian assets on the expectation that the country's
economy will suffer if a housing bubble pops has been called
"The Great White Short."
U.S. crude prices were up 1.20 percent at $47.9 a
barrel after a fall in U.S. inventories and a
bigger-than-expected cut in Saudi supplies to Asia helped
tighten the oil market.
Oil is one of Canada's major exports.
At 9:25 a.m. ET (1325 GMT), the Canadian dollar was
trading at C$1.3736 to the greenback, or 72.80 U.S. cents, down
0.6 percent, according to Reuters data.
The currency traded in a range of C$1.3653 to C$1.3770. On
Friday it hit its weakest in 14 months at C$1.3793.
Canadian government bond prices were higher across the yield
curve, with the two-year up 1.5 Canadian cents to
yield 0.714 percent and the 10-year rising 19
Canadian cents to yield 1.618 percent.
The 2-year yield fell 2.3 basis points further below its
U.S. equivalent to a spread of -65.6 basis points, its widest
gap since 2007.
The market is expecting the Federal Reserve to raise
interest further next month but has largely given up on
prospects of a hike this year from the Bank of Canada.
(Reporting by Fergal Smith; Editing by Bernard Orr)