07/13/2011 12:17 EDT | Updated 09/12/2011 05:12 EDT

Canadian Dollar Higher Amid Prospect Of U.S. Economic Growth, Strong Chinese Growth

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THE CANADIAN PRESS -- TORONTO - The Canadian dollar was sharply higher late morning Wednesday as U.S. Federal Reserve chairman Ben Bernanke said the central bank is prepared to provide additional stimulus if the current American economic lull persists.

The dollar rose 0.72 of a cent to 104.22 cent US, also supported by strong Chinese growth data and market sentiment that turned more positive despite ongoing worries about the European debt crisis.

Bernanke told a Congressional committee that further stimulus could take the form of another round of Treasury bond buying, it could cut the interest paid to banks on the reserves they hold as a way to encourage them to lend more or the central bank could also be more explicit in spelling out just how long it planned to keep rates at record-low levels.

Markets were also reassured by data showing that China's economy expanded by 9.5 per cent in the second quarter from a year earlier, down slightly from the 9.7 per cent pace seen in the first quarter. That was above the 9.4 per cent anticipated by economists and alleviated concerns of an abrupt slowdown which would impact the global economic recovery.

Strong Chinese demand has also driven prices higher for commodities such as oil and copper, which in turn have supported the Canadian currency.

The Chinese government has been trying to cool the world's second-biggest economy in order to bring down high inflation which hit a three-year high in June. China has hiked interest rates five times since October and tightened controls on lending and investment.

Meanwhile, Italy's finance minister sought to reassure nervous markets, saying the government's package of austerity measures will be strengthened and passed by Friday. He said that Italy would speed reforms and austerity measures that seek to balance the budget by 2014.

The European government debt crisis has been a focus of investors amid ongoing worries about whether Greece will have to default on its massive debt. But worries about the crisis grew this week as markets demanded higher interest rates for the debt of Italy and Spain.

And on Tuesday, Ireland's government bonds were downgraded by ratings agency Moody's to junk status.

Traders also looked to Friday's meeting of European Union finance ministers.

Commodities were higher with oil prices reversing earlier losses resulting from a report that U.S. crude supplies unexpectedly rose last week, suggesting demand is weak.

The August contract on the New York Mercantile Exchange rose $1.08 to US$98.51 a barrel.

Metal prices advanced with the September contract on the Nymex ahead four cents to US$4.43 a pound.

Bullion prices added to Tuesday's latest record high close, up $23.90 to US$1,586.20 an ounce as talk of more American stimulus raised inflation concerns.