TORONTO -- Solid home-construction data buttressed expectations that the Bank of Canada won't cut interest rates and drove the Canadian dollar up almost two-thirds of a U.S. cent yesterday for a gain of 1 1/2 cents in the past two trading days. The currency closed up 0.63 cent at 76.21 cents US after Canada Mortgage and Housing Corp. said last month's seasonally adjusted annual rate of housing starts rose by 5,000 to 237,200 -- the second-highest level in a dozen years.

Yesterday's rise in the dollar followed Friday's jump of 0.87 of a cent after a strong October employment report.

"Canada's economic environment remains supportive for the (Canadian dollar)," said John Johnston, chief economist at RBC Capital Markets, "and consistent with our new end-2004 target of 80 cents US."

On the stock markets, Toronto's S&P/TSX composite index declined 44.98 points to 7,815.46, dragged down by the financial sector.

Royal Bank retreated 75 cents to $64.25 and TD Bank shrank 80 cents to $42.92.

The junior TSX Venture Exchange edged down 10.74 points to 1,598.75.

On Wall Street, the Dow Jones industrial average surrendered 53.26 points to 9,756.53. The Nasdaq composite was off 29.10 at 1,941.64; the S&P 500 dipped 6.10 points to 1,047.11.

Analysts said yesterday's performance could set the tone for the week as traders await another catalyst to take markets higher amid concerns that stock prices have recently run up too far.

"I'm not saying that one day makes a trend, but logically we deserve a pause . . . this is overdue for this market," said Douglas Davis, president of Davis-Rea.

Air Canada shares were the second-most-active stock on the TSX after the airline said Hong Kong-based businessman Victor Li will be the major investor to lead the carrier's emergence from bankruptcy restructuring.

Under the deal, $1.1 billion will be invested in a restructured Air Canada, with $650 million from Li and $450 million from an offering of share purchase rights.

Air Canada shares jumped 11 cents to $1.19 on volume of 12.3 million shares -- even though the stock will be all but worthless after the restructuring.

"People think: 'The stock has been beaten up, I'm going to get some recovery on this,' and they go in without really doing their own numbers," suggested Davis.

Others pointed to short covering, where brokerages are calling in borrowed stock, forcing the shorts to go into the market and buy shares.