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* Canadian dollar at C$1.0806 or 92.54 U.S. cents * Bond prices mostly lower across the maturity curve By Leah Schnurr TORONTO, Jan 8 (Reuters) - The Canadian dollar fell to its lowest against the greenback in 3-1/2 years on Wednesday, weakening for a third straight day and underscoring market expectations that the loonie will be pressured further in 2014. The currency was also hurt by strength in the U.S. dollar after data showed the U.S. private sector added more jobs than expected in December. The strong report boded well for the more comprehensive official unemployment figures due at the end of the week. Wednesday's decline pushed the Canadian dollar through the C$1.08 level and extended a rout started in the previous session when data showed a steep widening of the Canada's trade deficit and a contraction in a gauge of purchasing activity. "It highlights the vulnerabilities of Canada," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "One is that our export sector hasn't recovered at the pace the Bank of Canada had expected it to, and that there is a large question mark overhanging it in terms of will it be able to provide the contribution to growth that is expected for 2014." "The second piece is what is going on in the Canadian oil sector and what will take place as U.S. domestic production increases." The Canadian dollar was at C$1.0806 to the greenback, or 92.54 U.S. cents, weaker than Tuesday's close of C$1.0772, or 92.83 U.S. cents. The loonie traded as low as C$1.0829 early in the morning, its lowest level since May 2010. It has been on a downward path since late October when the Bank of Canada shifted to a more neutral policy stance, and many analysts expect the currency to come under more pressure in 2014. "We were in a range for U.S. dollar-Canadian dollar for over month, and that range was pretty narrow," Sutton said. "So yesterday when we were able to break above it, that just added to pent-up momentum for upside in U.S. dollar-Canadian dollar." Bank of Canada Governor Stephen Poloz said on Tuesday the central bank should keep its key interest rate on hold until economic data persuades it otherwise. Later on Wednesday, minutes are set to be released from the most recent U.S. Federal Reserve meeting, in which the central bank decided to begin paring back its bond purchases. The minutes will be parsed for any clues as to how quickly the program may be unwound. Canadian government bond prices were mostly lower across the maturity curve, though the two-year was up half a Canadian cent to yield 1.107 percent. The benchmark 10-year was down 27 Canadian cents to yield 2.717 percent.