TORONTO - The Canadian dollar closed higher Thursday with investors willing to take on more risk amid signs of greater political stability in Europe.
The loonie was up 0.38 of a cent to 98.26 cents US.
Eurozone debt crisis jitters had intensified during the morning on reports that France could have its credit rating placed on negative credit watch by one of the big ratings agencies.
Standard & Poor's later said it has not lowered the credit ratings for France, clarifying what it says was an accidental transmission of a message to some subscribers that it had downgraded the nation's credit.
S&P says that is not the case and France's ratings remain at AAA, the highest investment-grade rating, with a "stable" outlook.
There was also speculation that a government led by respected economist Mario Monti will replace Italian Prime Minister Silvio Berlusconi, who was seen as an obstacle to meaningful economic reforms. Italy's benchmark borrowing rate eased back below seven per cent after spiking above that level the day before.
And in Greece, senior banker Lucas Papademos was named prime minister of a new coalition government Thursday, just a day after a breakdown in power-sharing talks had jolted markets. His job is to push through austerity measures being demanded by international lenders.
The dollar fell more than a cent Wednesday as traders fled to the safe haven of the U.S. dollar on the feeling that Europe's debt crisis was worsening amid a failure of political leaders to come up with a convincing plan to backstop heavily indebted countries like Italy and Greece.
The yields on Italy's benchmark 10-year bond surged well above the seven per cent threshold Wednesday, a level many economists view as unsustainable. Yields rise as bond prices fall.
On Thursday, the 10-year bond yield fell 11 basis points to 7.02 per cent, according to FactSet Research.
Tensions had also eased on the news that Italy easily sold €5 billion in 12-month bonds at borrowing rates which were not as bad as expected.
Investors asked for an interest rate of 6.087 per cent to lend Italy one-year money. That was up sharply from 3.57 per cent in the last such auction in October but well below analyst expectations of seven per cent.
The dollar was also supported by oil prices, which recovered from sharp price drops Wednesday on worries that a worsening European debt crisis might push the region into recession and derail the fragile global economic recovery.
The December crude contract on the New York Mercantile Exchange gained $2.04 to US$97.78 a barrel.
However, metal prices headed lower with the December copper contract down seven cents to US$3.37 a pound on top of a nine-cent slide Wednesday.
Bullion prices also declined as the December contract fell $32 to $1,759.60 an ounce.