*Canadian dollar slips 0.1 percent against greenback
*Banking woes move to Europe
*Bond prices rise on safe haven-bid as stocks fall
TORONTO, Sept 29 (Reuters) - The Canadian dollar slipped against a firmer U.S. dollar on Monday as concerned investors shifted their attention to Europe and commodity prices weakened on expectations the financial turmoil would lead to softer demand.
Canadian bond prices rose in a safe-haven bid fed by the strains in the global banking system.
At 10:20 a.m. (1420 GMT), the Canadian dollar was at C$1.0336 to the U.S. dollar, or 96.75 U.S. cents, down from C$1.0328, or 96.82 U.S. cents, at Friday's close.
The currency fell to C$1.452, or 95.68 U.S. cents, early in the session, its weakest level in a week, but quickly bounced back over a cent as low liquidity in the markets amplified moves.
Shaun Osborne, chief currency strategist at TD Securities, said the Canadian dollar was likely going to remain stuck in a range of C$1.03 to C$1.05 for quite some time as investors focus their attention on markets elsewhere in the world.
"Until we get a clear idea of what the fiscal implications of the U.S. bailout package are and what's going on in Europe, it's very difficult to get a strong handle on where we're going here," he said.
The Belgian, Dutch and Luxembourg governments nationalized parts of banking and insurance group Fortis FOR.BR, injecting 11.2 billion euros in a bid to prevent U.S.-style financial contagion engulfing one of Europe's top 20 banks. See [ID:nLT408294]
Meanwhile in the United States, Citigroup Inc C.N said it will acquire the bulk of Wachovia Corp's WB.N assets and liabilities. See [ID:nN29469599]. Under the deal, Citigroup will absorb up to $42 billion of losses. That is after JP Morgan said it would take a $31 billion hit on loans from its acquisition of Washington Mutual on Thursday.
The concerns over the global economic outlook have put a dent in commodity prices with U.S. crude oil CLc1 down well over $5 to just above $101 a barrel. As a major exporter of oil and base metals, the Canadian dollar often moves in line with resource prices.
Osborne said the weaker oil prices, along with month-end flows could weigh on the Canadian dollar over the next couple days, but that he does not expect the currency to fall sharply.
Bond prices rose on the trouble in the financial markets, getting an extra boost from poor performances in the North American stock markets.
"The virus is spreading -- European financial institutions are also shakey," said Carlos Leitao, chief economist at Laurentian Bank of Canada. "And with Canadian stocks performing worse than U.S. stocks this morning and commodities off, bonds will increasingly have a safe haven bid and they should do well this week."
The Bank of Canada moved to increase U.S. dollar liquidity in Canadian markets by expanding its swap facility with the U.S. Federal Reserve to US$30 billion from US$10 billion as part of a coordinated action by global central banks to grease seized-up money markets. See [ID:nN29376861]
The overnight Canadian Libor rate LIBOR01 was 3.4283 percent, up from 3.3617 percent on Friday. The Libor rate is the rate at which banks borrow funds from each other in the London interbank market.
Friday's CORRA rate CORRA= was 2.9808 percent, down from 2.9840 percent on Thursday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 35 Canadian cents to C$100.18 to yield 2.663 percent, while the 10-year bond gained 85 Canadian cents to C$105.30 to yield 3.595 percent.
The yield spread between the two- and the 10-year bond was 101 basis points, up from 87.3 basis points at the previous close.
The 30-year bond jumped C$1.45 to C$115.75 for a yield of 4.064 percent. In the United States, the 30-year Treasury yielded 4.185 percent.
The three-month when-issued T-bill yielded 1.85 percent, down from 1.90 percent at the previous close. (Reporting by John McCrank; Editing by Peter Galloway)