* C$ gets slapped in aftermath of weak U.S. data
* Slide in C$ cushioned by rally in oil prices
* Bond prices extend Tuesday slide on supply concerns (Recasts with comments and further drop in C$)
By Frank Pingue
TORONTO, Feb 25 (Reuters) - Canada's dollar tumbled to its lowest level since last week versus the greenback at midmorning on Wednesday in a swift move after weak U.S. economic data and falling equities fueled risk aversion trades.
With no key Canadian economic data due until the end of the week, the moves in the currency were being dictated largely by the direction in its U.S. counterpart, which took off on its safe-haven status after data showed the pace of existing home sales in the United States fell in January. [ID:nN25480760]
That data came as North American equities were pinned lower by nagging concerns about the fate of the U.S. banking sector.
"Markets are reacting to news, whether it's economic news or whether it's risk aversion trending by virtue of equity markets that are melting down right now," said Jack Spitz, managing director of foreign exchange at National Bank of Canada.
"It's all contributing to a bid to risk averse currencies favoring the U.S. dollar and that itself is underlying the bid in dollar/Canada."
The Canadian dollar fell as low as C$1.2580 to the U.S. dollar, or 79.49 U.S. cents, down sharply from an overnight high of C$1.2398 to the U.S. dollar, or 80.66 U.S. cents.
By 10:45 a.m. (1545 GMT), the Canadian currency recovered a touch to C$1.2551, or 79.67 U.S. cents, still down from C$1.2433, or 80.43 U.S. cents, at Tuesday's close.
The majority of the Canadian dollar's fall came within minutes of data that showed the pace of existing home sales in the United States fell in January to a 4.49 million units annualized, compared with expectations for a rise to 4.79 million.
Helping to cushion the commodity-linked Canadian dollar's slide was a rise in oil prices to above $40 a barrel, which extended their 4 percent rally in the previous session.
The move in the Canadian currency did not draw much concern among traders as it came on the heels of a 0.6 percent rally in the previous session, when North American equities surged and prices for oil, a key Canadian export, rose.
Also, traders said the Canadian dollar may get a boost later this week as Canadian banks report quarterly earnings. Canadian banks stand to benefit from comparison with problem-plagued U.S. banks, they said.
"Given that Canadian banks still generally appear to be performing quite well relative to the banking sector in the rest of the world it does highlight one of the positive facets of the Canadian dollar at the moment," Cole said.
Canadian bond prices extended their slide from the previous session as the lack of any Canadian economic data to spark a move left prices to fall alongside the bigger U.S. Treasury market due to nagging concerns about supply.
The next data due out in Canada will be Friday's current account balance for the fourth quarter. The data is expected to show Canada had a current account deficit of C$4.85 billion.
But the current account data is not expected to have a huge impact on Canada's bond market as it will be followed by gross domestic product figures on Monday, which are expected to show the Canadian economy shrank during the fourth quarter of 2008.
That will be followed by the Bank of Canada's interest rate announcement on March 3, when some expect the central bank to cut its key interest rate by a half point to 0.50 percent.
The interest-rate sensitive two-year bond was down 3 Canadian cents at C$102.67 to yield 1.211 percent, while the 10-year bond dropped 27 Canadian cents to C$110.93 to yield 2.895 percent.
The 30-year bond shed 40 Canadian cents to C$124.25 to yield 3.622 percent. (Editing by Peter Galloway)