Other markets are reversing some of the knee-jerk reaction to the failure of U.S. legislators to pass the $700 billion financial stabilization package. North American equity markets opened 1-2% higher and yields have climbed higher.

"The turnaround may also reflect speculation that, should legislators fail to agree on a bill, monetary policymakers will continue to do the heavy lifting and may even coordinate on a global scale with lower rates," said Steve Malyon, currency strategist at Scotia Capital.

Toronto's S&P/TSX composite index is up 301 points to 11586, the Dow Jones industrial average is up 229 points to 10595, the S&P 500 is up 29 points to 1136 and the Nasdaq is up 41 points to 2025.

European stock markets are mixed, with the Eurostoxx up 19 points to 2608, the UK FTSE 100 up 45 points to 4864 and the German DAX down 44 points to 5763.

Canada's gross domestic product shot up by a larger-than-expected 0.7% in July, well ahead of the consensus estimate of analysts, according to Statistics Canada. Economists had been expecting a month-over-month real GDP gain of 0.2% following June's reading of +0.1%.

"It's a bit of ancient history now, but at the very least it shows the economy had more underlying momentum than anticipated heading into the recent financial hurricane," said Douglas Porter, economist at BMO Capital Markets.

The Canadian dollar rallied one-fifth of a cent to 0.9568 but later fell to session lows in a broad U.S. dollar rally. The buck made sharp gains against the euro and that spilled over to other crosses. Aside from the softness against the U.S. dollar, the loonie is relatively strong.

The Canadian dollar is down 0.0069 to 0.9501 against the U.S. dollar (1.0525 USD/CAD) and up 0.58 to 100.21 against the yen.

The U.S. dollar is up 1.30 to 105.48 against the yen and the Dollar Index is up 1.293 to 78.764.

The euro is down 0.0256 to 1.4181 against the U.S. dollar, down 0.0172 to 1.4924 against the Canadian dollar, down 0.0116 to 0.7866 against the pound sterling and is lower by 0.83 to 149.55 against the yen.

The pound sterling is down 0.0056 to 1.8030 against the U.S. dollar and up 0.0064 to 1.8978 against the Canadian dollar.

WTI crude oil is up $1.84 to $98.21. The front month gold contract at the Chicago Board of Trade is down $4.60 to $889.80 per ounce.

There was a host of economic figures out of the U.S. The S&P/Cash-Shiller home price index for the largest 20 U.S. metropolitan areas fell 16.3% compared to the 16.0% decline expected. Meanwhile, consumer confidence in the U.S. was 59.8 compared with the 55.0 expected.

U.S. two-year yields are up 9.5 bps to 1.75%, with five-year yields up 10.3 bps to 2.78%, 10-year yields up 8.9 bps to 3.67% and 30-year yields up 6.7 bps to 4.18%. The Eurodollar March 09 contract is down 22.0 ticks to 97.15. The yield curve is flatter, with the 10/2-year spread down 0.1 bps to 191.27 bps.

Yields on two-year Canadian government bonds are up 4.7 bps to 2.61%, with five-year yields up 7.3 bps to 2.98%, 10-year yields up 9.4 bps to 3.60% and 30-year yields up 5.8 bps to 4.08%. The December 08 BAX contract is down 8.5 ticks to 97.09.

In Germany, returns on two-year German bonds are flat at 3.43%, with five-year yields up 3.4 bps to 3.73%, 10-year yields up 2.2 bps to 3.99% and 30-year yields flat at 4.59%.

Yields on UK two-year bonds are down 1.0 bps to 4.00%, with five-year yields up 0.6 bps to 4.18%, 10-year yields up 4.4 bps to 4.43% and 30-year yields up 2.5 bps to 4.49%.

All data taken at 10:10 a.m. EDT.

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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