The quickening flow of capital out of the country may be a sign that recent weakness in Canadian markets could deepen, particularly if, as looks likely, the Canadian dollar's four-year upward charge is losing steam.

Data released this week showed that Canadians bought a near record C$10 billion ($8.8 billion) in foreign securities in May, the third-highest level on record and easily eclipsing the C$5.7 billion that foreigners spent on Canadian assets.

The report highlights a trend that has been helped by the government's decision last year to knock down limits on the foreign assets held in tax-sheltered retirement savings plans.

Canadian purchases of foreign assets have steadily increased over the past year. From C$305 million in May 2005, outflows surged to C$9.2 billion in March, before rising higher in May.

Some see the trend as a signal that the recent flight to Canadian assets, driven by solid economic fundamentals and Canada's positive exposure to rising commodity prices, may have reached a tipping point.

You had a period of time... where the Canadian dollar was very strong, where Canadian markets outperformed, and you didn't need to look outside of Canada to make above average and really quite spectacular returns, said Merrill Lynch economist David Wolf.

A lot of investors may now be looking at their holdings and think that if the stronger Canadian dollar is no longer a big issue, you're starting to see some better opportunities abroad.

The currency hit a 28-year high in late May versus the U.S. dollar, but has since slid by 4 percent, due in large part to signals from the Bank of Canada that its recent rate-tightening cycle has hit its peak.

Canada's main stock index, meanwhile, touched a record high in April, but has since beat a haphazard retreat.

Wolf said the strong currency had helped keep capital in the country, building what he calls a ring fence around Canadian markets. Now you're starting to see some holes in the fence, and some of that capital is starting to bust outside the country.

MAPLE BONDS A POPULAR FLAVOR

One catalyst for outflows has been the increasing popularity of so-called Maple bonds, foreign corporate debt issued in Canadian dollars, allowing investors to diversify their portfolios, while not betting against the strong Canadian currency.

This has put some pressure on Canadian bond markets, pulling benchmark prices lower over the past year, although some of those losses can be attributed to seven straight Bank of Canada interest rate hikes between last September and May.

We've been pretty big direct investors abroad, said Scotia Capital economist Mark Chandler, acknowledging that such a statement goes against the oft-stated view that foreign investment in Canada is a key support for the still-strong Canadian dollar.

Canada Merrill Lynch U.S.