* C$ dips as data shows Canada shrinks 0.7 pct in Nov
* Higher oil helps cushion Canadian dollar's drop
* Bonds higher as investors shun riskier assets
By Jennifer Kwan
TORONTO, Jan 30 (Reuters) - Canada's dollar touched its weakest in a week against the U.S. dollar on Friday as investors shunned riskier assets and data showed the economy shrank more than expected in November as recession took hold.
The Canadian currency flagged after data showing the economy shrank 0.7 percent in November, the biggest monthly drop in more than five years, suggesting more weakness in the coming months. [ID:nN30397290]
The data sets the stage for a "pretty weak" backdrop for the fourth quarter, said Charmaine Buskas, senior economics strategist at TD Securities.
"It suggests the Canadian economy is indeed facing a recession and the economy does look to be very weak for the set up of 2009," she said.
At 9:52 a.m. (1452 GMT), the Canadian dollar was at C$1.2340 to the U.S. dollar, or 81.03 U.S. cents, down from Thursday's close of C$1.2233 to the U.S. dollar, or 81.75 U.S. cents.
The unit fell as low as C$1.2425 to the U.S. dollar, or 80.48 U.S. cents, the weakest since Jan. 23, shortly after the economic data.
Also on Friday, U.S. government data showed the economy shrank at its fastest pace in nearly 27 years in the fourth quarter, but the contraction was less than expected. That helped support the U.S. dollar against the Canadian dollar. [ID:nN30348995].
The price of oil CLc1 was higher on Friday, helped by the stronger-than-expected U.S. data and after OPEC signaled it may cut production. [ID:nSIN100514] Oil is one of Canada's biggest exports.
Higher oil helped to trim losses in the Canadian dollar, said Shane Enright, currency strategist at CIBC World Markets.
"The Canadian numbers were disappointing but from a North American point of view, the U.S. number was decent," he added. "It was kind of a little bit of a wash."
A broader theme of risk aversion was expected to feature prominently in markets on Friday as the U.S. dollar was buoyed by sullen economic data in Europe that focused concern on the deepening global recession. [ID:nLU560953].
Canadian bond prices were higher across the curve as the dim Canadian economic data drew investors to safe-government debt, said Buskas.
"The market has priced in a pretty weak back drop so I don't expect the rally to give up much ground from here," she said.
However, broader concerns over swelling supply could pressure bond prices as markets on both sides of the border remain nervous because of increased supply tied to deficits, market watchers say.
The two-year bond rose 7 Canadian cents to C$102.49 to yield 1.363 percent, while the 10-year bond climbed 50 Canadian cents to C$109.90 to yield 3.023 percent.
The 30-year bond rose C$1.30 to C$121.80 to yield 3.745 percent. In the United States, the 30-year Treasury yielded 3.5796 percent. (Reporting by Jennifer Kwan)