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Loonie slips as traders await rate announcement

Canadian dollars.

Jeff McIntosh/THE CANADIAN PRESS

The Canadian dollar closed lower Monday as traders took in mixed manufacturing data from the U.S. and China and mulled over a Republican proposal to avert a major fiscal crisis in the U.S. at the start of the year.

The loonie fell 0.13 of a cent to $1.0051 (U.S.) as HSBC's Purchasing Managers' Index for the world's second-biggest economy rose to 50.5 in November from October's 49.5. Any reading above 50 indicates activity is expanding. It was the first time in 13 months that China's manufacturing sector emerged from contraction.

Meanwhile, traders looked ahead to the Canadian central bank's next scheduled interest rate announcement on Tuesday. The Bank of Canada is widely expected to keep its key interest rate unchanged at 1 per cent, reflecting slowing economic conditions in much of the world.

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The other key economic event of the week happens Friday when Statistics Canada releases its November employment report. Economists expect the economy created about 7,500 jobs last month.

Traders also looked to negotiations aimed at loosening the U.S. fiscal deadlock, a combination of tax increases and across-the-board spending cuts set to automatically take place at the first of the year.

The resulting shock would cut economic growth and likely push the U.S. back into recession.

On Monday, Republicans proposed to increase the eligibility age for Medicare and to lower cost-of-living hikes in Social Security benefits.

The proposal is a response to Presiden Barack Obama's offer last week to hike taxes by $1.6-trillion over the coming decade but to exempt Medicare and Social Security from cuts to beneficiaries.

The GOP plan also proposes to raise $800-billion in higher tax revenue over the decade but would keep the Bush-era tax cuts, including those for wealthier earners being targeted by Mr. Obama, in place for now.

Signs emerged Monday that uncertainty over whether the U.S. can avoid a major fiscal crisis could be already affecting the U.S. economy as the Institute for Supply Management index for November came in at 49.5, the lowest level since July, 2009, and down from 51.7 in October.

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Commodities were higher with the January crude contract on the New York Mercantile Exchange up 18 cents to $89.09 a barrel.

Copper prices found slight lift from the Chinese data with the March contract up 1 cent at $3.66 a pound. China is the world's biggest consumer of the metal, which is viewed as a proxy for the global economy as it is used in so many applications.

Bullion gained $8.40 to $1,721.10 an ounce.

Traders were pleased to see a bond buyback plan unveiled by Greece.

Greece announced it plans to spend up to €10-billion ($13-billion) in a bond buyback program that it hopes will help stabilize its mountainous debt. The buyback is part of efforts to reform Greece's insolvent economy and reduce its debt to sustainable levels. It is also among steps the country is taking to secure the disbursement of vital international rescue loans.

The bond buyback was agreed to in a meeting of eurozone finance ministers in Brussels last week, which also approved the release of a critical €44-billion instalment of rescue loans.

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