Abstract: The present invention provides spin valve with a magnetic compensation field which couples to the pinned layer and counteracts sensing current induced magnetic field. The spin valve sensor of the present invention may be formed having a structure comprising: a free layer, a first spacer layer, a pinned layer, a pinning layer, a second spacer layer, and a compensation layer. The compensation layer may be formed of ferromagnetic material with its magnetization set so that the compensation field oriented in a reinforcing relationship with the magnetization of the pinned layer. Current through the compensation layer and the spacer layer may add to the compensation field. The spacer layer may be formed of a nonmagnetic material of sufficient thickness to prevent interaction between the pinning layer and the compensation layer while providing a sufficiently small distance to allow sufficient magnetic coupling to the pinned layer.