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How Ireland's debt crisis is driving down Canadian dollar, stocks

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Global markets reel Stocks are plunging and the Canadian dollar sinking as mounting fears over Europe's debt crisis and continuing speculation that China will raise interest rates rattle investors.

The loonie lost well more than a penny today as the U.S. dollar climbed. The latest debt troubles involving Ireland stirred up memories of last spring's European woes and sparked fears over contagion in the region, said Scotia Capital currency strategist Camilla Sutton.

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"The Canadian dollar has dropped sharply ... as investors run towards the U.S. dollar and the flight to safety," added Rahim Madhavji of Knightsbridge Foreign Exchange in Toronto.

"The theme of risk aversion is back in full swing. Equity markets and commodity prices are down fueled by Ireland debt issues and heightened uncertainty over a number of issues in the region, which is forcing traders with positions to move to the greenback. Expectations that China will raise interest rates impacting demand for commodities does not bode well for the loonie."

Ireland in spotlight The market angst comes as EU finance officials meet in Brussels. They have been pressing Ireland to resort to a bailout, which it insists it down't need. Much is at stake.

"As such today's meeting of EU finance ministers will be focusing on this very issue as bond markets continue to remain nervous, especially in light of further downgrades to Greece GDP figures yesterday by Eurostat," said CMC Markets analyst Michael Hewson.

Troubles are deepening not only in Ireland but also in Portugal - and Greece isn't out of the woods yet - and there's a rift in the group over Germany's demands that investors share in the pain of any sovereign credit default after 2013.

The EU's president Herman Van Rompuy, said as the meeting was beginning that the group is in a "survival crisis" and must "work together to survive, with the euro zone, because if we don't survive with the euro zone, we will not survive with the European Union.

Fed defends QE2 It's too early to judge the impact of the Federal Reserve's new $600-billion (U.S.) quantitative easing program, but officials of the U.S. central bank are out in force defending it.

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Both Janet Yellen, the vice-chair of the central bank, and William Dudley, the powerful president of the Fed's New York arm, discmissed criticism in separate interviews and expressed their confidence that the program, dubbed QE2, will help juice the economy.

"It is very early to judge the success or failure of the Fed's decision to return to asset buying and particularly difficult to know what would have happened had they never decided to enter QE2," said Scotia Capital currency strategist Camilla Sutton.

"We suspect we are approaching a period where we will hear substantial justification from the Fed, beginning with today's [Wall Street Journal] interview with Vice Chair Yellen. She comments that 'I'm having a hard time seeing where really robust growth can come from and I see inflation lingering around current levels for a long time.'

"Even though the recent improvement in data has been encouraging, the underlying U.S. economy remains notably weak and well below what we would typically see in a recovery. The Fed was not meeting either of its mandates and likely felt there was little choice, but attempt to loosen policy."

The program is aimed at driving down longer-term interest rates, given that short-term rates can't go lower, by buying longer-term Treasurys. But, The Wall Street Journal notes today, the markets have been bucking the central bank, selling government debt and in some some cases pushing rates up to their highest in several months.

"Rising U.S. 10-year Treasury yields have in turn underpinned the U.S. dollar, hitting 2.95 per cent, a three-month high," said CMC Markets analyst Michael Hewson.

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Manufacturing sales dip Canadian factory sales fell 0.6 per cent in September and new orders also declined on slower demand for transportation equipment.

Manufacturing sales ebbed to $45.1-billion, Statistics Canada said today, led by a drop in the cars, car parts and aerospace sector in Central Canada. Sales fell in 13 of 21 industries, representing two-thirds of total sales. New orders fell 4.9 per cent, The Globe and Mail's Tavia Grant reports.

Despite the drop, manufacturing sales were 17.7 per cent higher in September than their recent low in May 2009. Since then, sales have increased in 11 of the past 16 months.

BHP cites rising protectionism The chairman of BHP Billiton Ltd. says his company may have walked away from Potash Corp. of Saskatchewan because of Ottawa's rejection of a takeover, but not to expect it's going to chase lesser deals instead.

"We're not about to change from transactions that potentially involve tier one assets ... to go after second tier, lower quality acquisitions," Jac Nasser told shareholders at BHP's annual meeting in Perth, Australia.

Mr. Nasser also said that Ottawa's refusal to accept BHP's terms is part of a rising tide of protectionist sentiment in the wake of the financial crisis as regulatory scrutiny is increased, Globe and Mail correspondent Andy Hoffman reports from Perth.

"The world is changing, whether you want to call it protectionism or nationalism," he told reporters after the meeting.

Separately today, a Russian company, Phosagro, said it's interested in Potash Corp., and that it plans to talk to Ottawa before taking any further steps.

"Phosagro intends to consult with all interested parties, including the government of Canada, on the advisability of a bid to buy Potash Corp. as an alternative to BHP Billiton's previous bid," the fertilizer producer said in a statement, according to Reuters.

GM boosts IPO General Motors Co. said today it's boosting the price range for its eagerly-awaited initial public offering due to strong investor demand.

The auto maker, soon to be born again on public markets after its bailout and stint in bankruptcy protection during the crisis, hiked the range to between $32 (U.S.) and $33 a share.

That's up from the previous range of $26 to $29.

It's also increasing the number of preferred shares it will sell to 80 million from 60 million. The common share offering is expected to be about 365 million shares.

Apple welcomes Beatles to iTunes Apple Inc. is finally bringing the Beatles to iTunes.

Apple said today that the Beatles, whose music has been conspicuously absent from online music stores, will begin appeared on iTunes today, with 13 remastered albums. Users will be able to buy songs or full albums.

Apple will also sell a special set that includes a movie of their first U.S. concert.

"I am particularly glad to no longer be asked when Beatles are coming to iTunes," said Ringo Starr, one of the two surviving members of the band. "At last, if you want it you can get it."

The move is interesting in so many ways. Missing the Beatles, the best-selling band ever, was an obvious huge hole in iTunes, and today's deal will solidify the digital revolution and highlight how buying over the Internet has become the mainstream.

Yet, according to The New York Times, while it's a coup it won't do much for the company given that iTunes isn't a big source of profit for Apple.

"It's very symbolic because Steve Jobs is a huge fan of the Beatles," Creative Strategies analyst Tim Bajarin told the newspaper.

(While we will refrain from phrases such as how it has been a "long and winding road" for both iTunes and the Beatles, we nonetheless offer a rare version of this column to mark the import of the deal.)

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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