TORONTO, March 5 (Reuters) - The Canadian dollar fell against the U.S. currency on Thursday as oil prices dropped and risk appetite waned, with European shares falling, putting the ailing economic outlook back to the forefront.
The Canadian dollar had rallied on Wednesday as investors bought up riskier assets, partly fueled by expectation China would introduce extra stimulus measures.
However, on Thursday Premier Wen Jiabao said China would ramp up deficit spending this year to hit its 8 percent growth target, but did not announce an increase in the country's two-year economic stimulus plan. For story see [ID:nSP395150].
"There was great optimism yesterday there would be another package," said Eric Lascelles, chief economics and rates strategist at TD Securities. "There is some unwind of the optimism."
At 7:36 a.m. (1236 GMT), the Canadian dollar fell to C$1.2863 to the U.S. dollar, or 77.74 U.S. cents, from C$1.2754 or 78.41 U.S. cents, at Wednesday's close.
Lascelles added that a slump in the price of oil, a key Canadian export, also contributed to the unit's weakness.
Oil CLc1 dropped to below $44 a barrel in New York on Thursday after surging 9 percent the previous session.
Bonds were higher across the curve as investors shunned riskier assets, with European stocks falling and U.S. stock index futures pointing to a lower open. (Reporting by Jennifer Kwan; Editing by James Dalgleish)