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* Canadian dollar little changed against weaker dollar
* Fears over U.S. bailout plan give bid to Canadian bonds
By John McCrank
TORONTO, Sept 26 (Reuters) - The Canadian dollar was flat against a weaker U.S. dollar on Thursday as lower commodity prices prevented the currency from making gains against the greenback, which is under pressure over a lack of resolution to the cash and credit crunch in the U.S. financial sector.
Bond prices rose as participants looked for safe investments during the financial turmoil.
At 9:40 a.m. (1340 GMT), the Canadian dollar was at C$1.0343 to the U.S. dollar, or 96.68 U.S. cents, unchanged from Thursday's close.
"Canada's had a pretty good run, and we seem to be getting quite comfortable in the C$1.03s, but commodities are off and it looks like we're just going to be caught waiting and watching and seeing if they (U.S. lawmakers) can come to some kind of resolution over this whole bailout package," said Steve Butler, director of foreign exchange trading at Scotia Capital.
The Canadian dollar has risen around 4 percent against the U.S. dollar in the past couple weeks, mainly due to the mounting problems in the beleaguered U.S. financial sector.
Washington Mutual Inc was the latest bank to fail in the crisis and the largest failure in U.S. history. See [ID:nN25440417]. It had suffered from soaring mortgage losses, and its assets were sold to JPMorgan Chase for $1.9 billion overnight.
Concerns over the whether the U.S. Congress would reach a timely agreement over the proposed $700 billion rescue package weighed on commodity prices, as consumer confidence and demand were seen taking a hit. See [ID:nSYD214268]
Commodities make up over half of Canadian exports.
Bond prices rallied along with the larger U.S. market as concerns over the U.S. bailout package led to a flight to safety into relatively stable fixed income markets, said Paul Ferley, assistant chief economist at RBC Capital Markets.
"Whether that's sustained or not is very much going to be a question in terms of how things play out in Washington," he said.
"If they can hammer out some sort of agreement before the start of trading next week, I think this thing can quickly reverse, but at the moment you're just seeing a spillover from the U.S."
The Bank of Canada said on Thursday it will pump an extra C$6 billion into markets in October, on top of the C$4 billion already announced, promising to buy securities in the market in four additional operations and then sell them back.
The overnight Canadian Libor rate LIBOR01 was 3.3617 percent. The Libor rate is the rate banks borrow funds from each other, in the London interbank market.
Thursday's CORRA rate CORRA= was 2.9840 percent, up from 2.9737 percent on Wednesday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 20 Canadian cents to C$99.90 to yield 2.797 percent, while the 10-year bond added 40 Canadian cents to C$104.90 to yield 3.643 percent.
The yield spread between the two- and 10-year bond was 88.1 basis points, up from 79.5 basis points at the previous close.
The 30-year bond gained 60 Canadian cents to C$115.10 for a yield of 4.099 percent. In the United States, the 30-year treasury yielded 4.361 percent.
The three-month when-issued T-bill yielded 1.90 percent, down from 1.95 percent at the previous close. (Reporting by John McCrank)