Loonie gets respite after recent drop

By Leah Schnurr

TORONTO (Reuters) - The Canadian dollar firmed against the greenback on Monday, clawing back some recent losses as investors sold the U.S. currency, though the bounce did not change analysts' bearish outlook on the loonie.

Market activity was muted and was likely to stay that way heading into the New Year's Day holiday on Wednesday. Lighter liquidity can exaggerate moves.

There is no Canadian economic data on tap until the new year, but south of the border data showed contracts to purchase previously owned U.S. homes edged up in November. Still, the lack of significant releases is likely to leave the Canadian currency searching for direction.

"There's a clear lack of liquidity in the marketplace," said Gareth Sylvester, director at Klarity FX in San Francisco.

The Canadian dollar ended the North American session at C$1.0640 to the greenback, or 93.98 U.S. cents, stronger than Friday's close of C$1.0704, or 93.42 U.S. cents.

The Canadian dollar traded as low as C$1.0728 overnight. The U.S. dollar (.DXY) lost 0.5 percent against a basket of currencies.

After losing more than 7 percent this year, many analysts expect the loonie to continue to weaken in 2014. A more neutral stance from the Bank of Canada and the ongoing reduction of the Federal Reserve's economic stimulus program is seen keeping pressure on the Canadian dollar.

Monday's gains do not change the longer-term view, said Sylvester.

"Only if we saw this market break down through the C$1.0530 area, then, at least in the near-term, you could see a slightly deeper retracement, but the underlying trend from a quarterly perspective still argues that higher U.S. dollar-Canadian dollar should be seen."

Investors will get a look at more housing data from the United States on Tuesday, with the Case-Shiller home price index for October on tap. Data on regional manufacturing activity and U.S. consumer confidence will also be released.

The next domestic piece of data will be manufacturing activity for December, due on Thursday.

Canadian government bond prices were mostly higher across the maturity curve, with the two-year up 4-1/2 Canadian cents to yield 1.130 percent and the benchmark 10-year up 40 Canadian cents to yield 2.737 percent.

(Editing by Leslie Adler)