Canada dollar has biggest one-day drop since 1971
* Canadian dollar plunges 3 percent versus greenback
* Canada creates 107,000 jobs in September
* Bonds fall with U.S. market on oversupply concerns
By John McCrank
TORONTO, Oct 10 (Reuters) - The Canadian dollar closed at its lowest level since March 2007 against the U.S. dollar on Friday, taking its biggest one-day slide in nearly 38 years, as fears of a global recession and slumping commodity prices trumped some better than expected economic data.
The currency hit a weak point of 82.40 U.S. cents, its lowest level since August 2005, before a slight recovery.
Bond prices were lower along with the larger U.S. market, on supply concerns due to massive new issues of government debt to pay for U.S. bailout measures.
The Canadian dollar closed down 3 percent against the U.S. dollar at C$1.1808, or 84.69 U.S. cents. That compares with C$1.1458 to the U.S. dollar, or 87.28 U.S. cents, at Thursday's close.
For the week, the currency shed 8.4 percent, nearly doubling its previous biggest weekly loss since at least 1970. That happened just last week when it took a 4.5 percent nosedive. Thomson Reuters data for weekly percentage changes in the Canadian currency begin in 1970.
"Clearly the Canadian dollar has been completely dragged into the global financial market mayhem," said Doug Porter, deputy chief economist at BMO Capital Markets.
Fears of a global recession and dropping demand have been hammering commodity prices. U.S. crude oilCLc1 ended the session under $78 a barrel, down over $147 a barrel in July.
"Just based on the drop in commodity prices and in oil alone, I think that would justify a big chunk of today's move," Porter said.
Canada is the biggest supplier of oil to the United States, and commodities make up around half of Canadian exports.
More than three-quarters of all Canadian exports are absorbed by the U.S. economy, which has been stunted by a recession in its housing sector and the credit crunch.
"Canada is obviously one of the most vulnerable countries to a U.S. slowdown," said Jacqui Douglas, currency strategist at TD Securities.
In economic news, a report showed Canada had its largest monthly employment gain since Statistics Canada started collecting similar data in 1976. The country added 107,000 jobs in September, although most of the increase was in part-time employment. See [ID:N10365080]
Canada's trade surplus also defied expectations, jumping to C$5.8 billion in August from C$4.2 billion in July, but the increase was due to a fall in imports, not an increase in economic activity.
Canada's currency only registered a slight bump up on the data, before resuming its downward trend.
"I guess what I find most notable... is how today's economic data have been completely brushed aside," said BMO's Porter. "I would have thought they would have provided at least a modicum of support."
BOND PRICES FALL
Bonds were lower along with the larger U.S. market due to the massive new U.S. debt supply issued to fund a bevy of U.S. programs intended to free up lending.
"What the Fed is doing right now is basically just printing money, and at this pace, it eventually will be very inflationary, so that's why I think the long end is getting hit," said Sheldon Dong, fixed income strategist at TD Waterhouse Private Investment.
He said the short end of the curve was better bid because it is most closely aligned with interest rate expectations and bond traders are betting central banks will be forced to cut rates again to spur growth.
The two-year bond fell 22 Canadian cents to C$101.10 to yield 2.218 percent. The 10-year bond slid C$1.37 to C$103.68 to yield 3.789 percent.
The yield spread between the two-year and the 10-year bond fell to 128 basis points from 137 basis points at the previous close.
The 30-year bond dropped C$1.90 Canadian cents to C$112.15 to yield 4.261 percent. In the United States, the 30-year treasury yielded 4.077 percent. (Reporting by John McCrank; Editing by Peter Galloway)
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