Loonie down amid muted reaction to Greek debt deal, rising commodities

TORONTO - The Canadian dollar closed lower Tuesday as traders reacted cautiously to an agreement to lend Greece €130 billion to avoid a debt default.

The loonie lost 0.43 of a cent to 100.34 cents US as the U.S. dollar strengthened and the currency failed to find lift from commodity prices, which ran ahead amid moves by China to loosen lending and encourage growth.

"The agreement on Greece's second bailout package seems to have been met more with fatigue rather than enthusiasm," said Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities.

The eurozone and the International Monetary Fund, which will be providing the money for the new bailout, hope the new program will eventually put Greece back into a position where it can survive without external support and secure its place in the euro currency union.

But the patchwork of measures required to give the rescue even a chance of success — including the implementation of austerity measures in Greece and approval by skeptical German and Dutch parliaments — means it's unlikely to be the end of the continent's debt crisis.

Meanwhile, prices for oil and metals advanced after China's central bank moved over the weekend to cut banks' reserve ratios. The People's Bank of China said that it will reduce the proportion of cash that banks must set aside by half a percentage point to 20.5 per cent from Feb. 24.

The bank had moved repeatedly over the last couple of years to tighten lending requirements in order to slow the economy to get a grip on high inflation.

The March crude contract on the New York Mercantile Exchange gained $2.60 to US$105.84 a barrel.

Crude prices rose as Iran laid out conditions for future oil exports to European countries after halting sales to Britain and France earlier this week in retaliation for an EU embargo over Tehran's controversial nuclear program that is to go into effect in July. Foreign Ministry spokesman Ramin Mehmanparast said Tuesday that Iran seeks guarantees of payments, long-term contracts and a ban on unilateral cancellation of contracts by buyers.

Tehran said Monday it was considering extending the oil embargo to other European countries.

Metal prices also climbed with the March copper contract up 13 cents to US$3.84 a pound. China is the world's biggest consumer of the metal, which is known as an economic barometer as it is used in so many businesses.

April gold bullion was ahead $32.60 to US$1,758.50 an ounce.

On the economic calendar, Statistics Canada said retail sales edged down 0.2 per cent in December to $38.6 billion, following four consecutive monthly increases.

The agency also reported that wholesale trade rose 0.9 per cent in December to $49.6 billion, the seventh increase in the last eight months of 2011.