By John McCrank
TORONTO, Dec 4 (Reuters) - The Canadian dollar fell against the U.S. dollar as tensions in the money market prompted investors to avoid risky currencies, and more bumps may be ahead with a looming Bank of Canada interest rate decision.
Domestic bond prices rose in a safe-haven bid.
At 7:50 a.m. (1250 GMT), the Canadian dollar was at 99.66 U.S. cents, valuing each U.S. dollar at C$1.0034, down from 99.98 U.S. cents, or C$1.0002, at Monday's North American close.
With liquidity in some credit markets at its lowest in years, and equity futures pointing to a weaker open, investors avoided bets on risky currencies like the Canadian dollar, said Adam Cole, currency strategist at RBC Capital Markets in London.
One-month intrabank lending rates for the euro (Eurlibor) were near 7-year highs, and one-month sterling London intrabank rates (Libor) were at a 9-year high.
"Because of what Canada exports, i.e., generally highly cyclical commodities and because trade is generally a very large portion of the economy and Canada is a very open economy, it is therefore, in that sense, very keyed into the global growth cycle."
A global economic slowdown could dent demand for Canada's commodity exports.
While global factors were moving the currency in the overseas session, the main event for the day will come at 9 a.m. with the Bank of Canada's interest rate announcement.
The market perceives the meeting as being too close to call, with a 50 percent chance of a rate cut priced in.
"So we should see some reaction in terms of dollar-Canada either way, whether they do nothing or whether they cut," said Cole.
A Reuters poll taken on Friday showed eight of Canada's 13 primary securities dealers expect the central bank will leave rates steady on Tuesday.
Before Friday, analysts had been more or less split in their expectations, but data showing the Canadian economy grew more than expected in the third quarter tipped sentiment in favor of no move in December.
Looking ahead, most dealers polled expect an interest rate cut in January.
Since the currency's rapid ascent to a modern-day high of US$1.1049 on Nov. 7, several central bank officials and senior government officials have been concerned about how its strength could hurt manufacturing and overall economic growth.
Canadian bond prices were slightly higher on a safe haven bid as equities markets looked set for a lower opening.
The overnight Canadian Libor rate LIBOR01 was at 4.4417 percent, down from 4.5650 percent on Monday. The Bank of Canada targets 4.50 percent for the overnight rate.
The two-year bond rose 2 Canadian cents to C$101.34 to yield 3.544 percent. The 10-year bond climbed 6 Canadian cents to C$100.93 to yield 3.882 percent.
The yield spread between the two-year and 10-year bond moved to 33.5 basis points from 33.1 at the previous close.
The 30-year bond added 9 Canadian cents to C$115.91 to yield 4.069 percent. In the United States, the 30-year treasury yielded 4.3104 percent.
The three-month when-issued T-bill yielded 3.94 percent, up from 3.91 percent at the previous close. (Editing by Bernadette Baum)