(Adds strategist comment, updates prices to close)
* Canadian dollar ends at C$1.4080, or 71.02 U.S. cents
* Currency hit a fresh 12-year low
* Bond prices higher across the maturity curve
TORONTO, Jan 6 (Reuters) - The Canadian dollar set a fresh
12-year low against its U.S. counterpart on Wednesday as oil
prices tumbled, investors sought safety from rising geopolitical
tensions, and China fueled fears about its economy by allowing
the yuan to weaken.
The broader concerns overshadowed improvement in Canada's
trade deficit, at one point pushing the currency above C$1.41 to
the greenback, a level last hit in August 2003.
The Canadian dollar also extended losses against the
Japanese yen, already at a three-year low, as the Asian currency
saw safe-haven flows amid escalating tensions in the Middle East
and after a nuclear test by North Korea.
"The events that did unfold in North Korea yesterday created
a flight to quality flow in FX which the Canadian dollar is not
a beneficiary of," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.
The Canadian dollar CAD=D4 settled at C$1.4080 to the
greenback, or 71.02 U.S. cents, much weaker than the Bank of
Canada's official close of C$1.3989, or 71.48 U.S. cents.
It has steadily weakened since breaking above C$1.35 in
early December, as the U.S. Federal Reserve raised rates for the
first time in nearly a decade and as economists consider
possible Bank of Canada rate cuts in 2016.
Canada posted a smaller-than-expected trade deficit of
C$1.99 billion in November from a revised C$2.49 billion gap in
October on increased exports to the United States, data from
Statistics Canada showed.
"It's a step in the right direction," said BMO Capital
Markets senior economist Sal Guatieri.
The weaker Canadian dollar is the main reason behind
improvement in Canada's trade balance, according to Guatieri.
"The currency's impact on growth should improve through the
year," Guatieri added.
North Korea's reported successful nuclear test and further
weakening in China's yuan after data showed the nation's
services Purchasing Managers' Index expanded at its slowest rate
in 17 months weighed on sentiment.
Oil prices slid as a row between Saudi Arabia and Iran made
any cooperation between major exporters to cut output even less
likely.
U.S. crude CLc1 prices settled down 5.6 percent at $33.97
a barrel, while Brent crude LCOc1 lost 5.9 percent to
$34.27. O/R
Canadian government bond prices rose across the maturity
curve on the flight to safety, with the two-year CA2YT=RR
price up 7 Canadian cents to yield 0.415 percent and the
benchmark 10-year CA10YT=RR rising 42 Canadian cents to yield
1.329 percent.