* Canadian dollar down 4.4 percent so far this week
* Bonds gain on safe-haven bid as stocks dive
* Focus on U.S. House vote on bailout, U.S. jobs data
By John McCrank
TORONTO, Oct 2 (Reuters) - The Canadian dollar tumbled 1.7 percent against the U.S. dollar on Thursday as tight credit markets put a premium on the greenback and commodity prices fell on concerns that slowing global growth would undercut demand.
Bond prices surged as worried investors continued to seek the safety of government debt amid a weakening global economy and falling stock markets.
The Canadian dollar ended the North American session at C$1.0799 to the U.S. dollar, or 92.60 cents, down from C$1.0620 to the U.S. dollar, or 94.16 U.S. cents, at Wednesday’s close.
The currency is down 4.4 percent so far this week and is at its weakest point since Sept. 11.
“We seem to be in an environment where there is shortage of (U.S.) dollars, despite the fact that the central banks have been throwing gobs of liquidity at the markets,” said Shaun Osborne, chief currency strategist at TD Securities.
The lack of resolution of the debate over the proposed $700 billion bailout plan for the U.S. financial sector has caused a tightening in credit markets as financial institutions are reluctant to lend to each other, he said.
“It seems possible to me that people are selling foreign exchange positions, bringing home assets and trying to dress up their balance sheets, because it’s very difficult to secure their regular funding.”
Weakening commodity prices -- oil CLc1 was down nearly $5 a barrel and gold XAU= was off nearly $35 an ounce -- added to the Canadian dollar’s decline. Around half of Canadian exports are made up of natural resources.
Canadian bond prices rallied as investors retreated from plunging equity markets, which were beaten up by concerns about whether the U.S. House will pass the revived bailout package for the financial industry.
“In recent weeks, the Treasury market, and to a lesser extent the Canadian bond market, have been whipsawed in twists and turns by the fiscal costs of the bailout on the one side, and concerns about a much deeper downturn on the U.S. on the other side,” said Doug Porter, deputy chief economist at BMO Capital Markets. “Today it’s obviously the concerns about the downturn.”
The Toronto Stock Exchange’s main index sank 6.95 percent and the Dow Jones industrial average fell 3.22 percent on Thursday even though the U.S. Senate passed the revised bailout package by a big margin on Wednesday.
The U.S. House of Representatives is expected to vote on the new bill on Friday after its surprise rejection of the first version of the plan earlier this week, which sent stocks reeling.
Poor car sales, weak manufacturing numbers and disappointing jobless claims in the United States have heightened concern that there will be steep losses in Friday’s U.S. jobs figures for September.
The two-year bond rose 22 Canadian cents to C$100.31 to yield 2.601 percent. The 10-year bond gained 47 Canadian cents to C$104.75 to yield 3.660 percent.
The yield spread between the two-year and the 10-year bond was 105 basis points, unchanged from the previous close.
The 30-year bond added 55 Canadian cents to C$114.05 for a yield of 4.156 percent. In the United States, the 30-year Treasury yielded 4.156 percent.
The three-month when-issued T-bill yielded 1.65 percent, down from 1.85 percent at the previous close. (Reporting by John McCrank; Editing by Peter Galloway)