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Quebec Mood Shift Relieves Wall Street

WALL Street is cheering the prospect of Canada surviving as a single nation.

As polls show declining separatist sentiment in Quebec, the Canadian dollar strengthens against the United States dollar.

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''The market has concluded the [separatists] are not going to win,'' notes Anita Lauria, an economist with Salomon Brothers, a New York-based investment banking firm.

When in mid-September Jacques Parizeau, Quebec's separatist premier, announced the wording of the referendum question to be put to the provincial electorate Oct. 30, the Canadian dollar was worth about 73 US cents. A survey then by the polling firm Group Leger & Leger found 50.2 percent for the ''yes'' side.

Last week, a poll taken by the same firm indicated yes support had slipped to 46.8 percent. Subsequently the Canadian dollar moved above 75 US cents in value.

At the same time, the spread between interest rates on 10-year Canadian Treasury bonds and similar US Treasury bonds narrowed sharply from about 2 percent to 1.5 percent. The spread for bonds issued by the Quebec government was greater - an extra 0.5 percent, or 50 basis points in Wall Street terminology, reflecting the higher risks associated with that province's debt.

For the financial community, these are big shifts in the exchange rate and interest rates. Investors do not like uncertainty with their money - big money - at stake. The province of Quebec alone, with only 6.9 million people, has $42 billion (Canadian; US$31.5 billion), in outstanding bonds. Of this total, $21 billion remains in Canada, $7 billion in the US, $5 billion in Eurodollars, $4.4 billion in Japan, and $1.6 billion in Germany.

''If Quebec's electorate chooses a course toward secession, arguments may develop over apportionment of Canada's debt, the value of Quebec's share of common assets outside the province, continuation of essential federal services, or other issues,'' write Morgan Stanley & Co. economists Thomas McManus and James Johnson.

Wall Street analysts are careful not to comment on the impact of independence on the Quebec economy, should it come about. Their firms do business, or would like to do business, with the province. But the market clearly sees separation as bad.

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''There would be considerable new uncertainties if there was a Yes vote,'' Ms. Lauria says.

John Helliwell, a University of British Columbia economist presently at Harvard University in Cambridge, Mass., has done new research indicating that Quebec would be taking an enormous economic risk should it separate. He found that Quebec does more than 20 times more goods trade and 50 times more service business with other provinces (such as British Columbia) than it does with American states of similar size and distance (such as Texas).

''Quebec is even more tightly tied into the fabric of Canada, relative to its ties to the United States, than are the Anglophone provinces,'' he notes. ''It would be no trivial matter, for either Quebec or the remaining parts of Canada, if Quebec were to change from being part of Canada to being an independent country.... The fabric of the Canadian economic union is much tighter and more closely woven than anyone had previously believed.''

This finding is significant because Premier Parizeau has sometimes argued that the North American Free Trade Agreement, removing trade barriers between Canada and the US, will make Quebec's economic ties to the remainder of Canada less important. Opponents of separatism maintain that the US would not automatically extend the benefits of NAFTA to an independent Quebec, and that new negotiations might end up harming some Quebec industries, such as textiles.

The referendum question attempts to abate some economic fears in Quebec by speaking of ''a formal offer to Canada for a new economic and political partnership.'' Canada's Finance Minister Paul Martin tried to throw water on such an idea by telling a Montreal audience last week that ''there would never be a new economic union, because Canada would have too much to lose.''

Mr. Helliwell's findings would indicate that a truncated Canada would itself have much to lose by economically shunning Quebec. But the risk in a changed relationship is such that many of Quebec's own business elite are now actively opposing separation.

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