The economy expanded at a 1.3% annualized pace in the third quarter, better than the 1.1% expected. Second-quarter growth was upwardly revised to +0.6% from +0.3%.

The Canadian dollar was down by a half cent heading into the report and was virtually unchanged afterwards. Charmaine Buskas, senior economics strategist from TD Securities, disregarded much of the report, saying the fourth quarter "is shaping up to be pretty ugly."

"One should not take too much comfort in the third quarter GDP report, except to note that it provides a healthy hand-off for the fourth quarter," she said.

The Canadian dollar is down 0.0045 to 0.8020 against the U.S. dollar (1.2466 USD/CAD) and down 1.61 to 75.47 against the yen.

Elsewhere, risk aversion has returned following five days of gains in U.S. equity markets. Manufacturing is in the spotlight after weak reports out of Europe, the UK and China and ahead of the U.S. ISM survey at 10 a.m. EST.

The UK manufacturing PMI fell to a record low of 34.4 in November from 40.7 in October. The consensus was for a 39.7 reading. The final euro zone manufacturing PMI was revised down to a record low of 35.6 in November versus the preliminary 36.2 reading. China's manufacturing PMI fell to 38.8 from 44.6 in November.

U.S. equity market futures are lower with contracts on the Dow Jones industrial average down 182 points to 8639, the S&P 500 down 22 points to 873 and the Nasdaq down 27 points to 1159.

"Despite the impressive string of gains in stocks last week, the gravitational pull of harsher economic reality has stopped the advance and leaving us with a negative open," said Andrew Pyle, investment adviser at Scotia Capital.

European stock markets are also lower, with the Eurostoxx down 65 points to 2094, the UK FTSE 100 down 106 points to 4182 and the German DAX down 127 points to 4543.

Asian markets were mixed, with the Japanese Nikkei closing down 115 points to 8397 and the Hang Seng Index up 221 points to 14109.

The economic worries have spilled over to fixed income and U.S. Treasury yields are at record lows.

U.S. two-year yields are down 3.2 bps to 0.95%, with five-year yields down 6.6 bps to 1.85%, 10-year yields down 7.5 bps to 2.84% and 30-year yields down 10.4 bps to 3.33%. The Eurodollar March 09 contract is down 2.0 ticks to 98.06. The yield curve is flatter, with the 10/2-year spread down 4.6 bps to 189.13 bps.

Yields on two-year Canadian government bonds are down 3.2 bps to 1.67%, with five-year yields down 4.5 bps to 2.40%, 10-year yields down 6.3 bps to 3.26% and 30-year yields down 5.1 bps to 3.85%. The December 08 BAX contract is down 1.0 tick to 98.12.

In Germany, returns on two-year German bonds are down 10.2 bps to 2.09%, with five-year yields down 13.1 bps to 2.52%, 10-year yields down 7.8 bps to 3.18% and 30-year yields down 5.0 bps to 3.67%.

Yields on UK two-year bonds are down 17.9 bps to 2.03%, with five-year yields down 16.1 bps to 3.04%, 10-year yields down 11.0 bps to 3.66% and 30-year yields down 5.0 bps to 4.07%.

All data taken at 8:56 a.m. EST.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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