* C$ ends at C$1.0004 vs US$, or 99.96 U.S. cents * U.S. equities fall as 'fiscal cliff' in focus * Canada and U.S. trade deficits narrow on increased exports * Canadian housing starts fell in October * ECB holds interest rate steady By Andrea Hopkins TORONTO, Nov 8 (Reuters) - Canada's dollar retreated past parity with its U.S. counterpart and ended the day at its weakest point in a week as it tracked falling stock markets amid concern over the U.S. "fiscal cliff." Wall Street's three major U.S. indexes extended losses on Thursday after shedding more than 2 percent on Wednesday as investors continued to worry about upcoming Congressional negotiations over some $600 billion in spending cuts and tax increases due to kick in early next year. "Canada is still extremely highly correlated to the S&P ... The correlation is still somewhere over 80 percent. They pretty well run in tandem. For now, it just looks like Canada is tracking the equity markets," said Darcy Browne, managing director, foreign exchange sales at CIBC World Markets. The Canadian dollar ended the North American session at C$1.0004 to the U.S. dollar, or $0.9996, weaker than Wednesday's close of C$0.9961, or $1.0039. It was the weakest close since Oct. 29. "We've been in a risk-off environment for the last couple of days and the currency has held relatively stable, so it was due for a little weakness and we got some today," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. The Canadian dollar underperformed against most major currencies, including the euro, which had touched a two-month low against the U.S. dollar after the European Central Bank kept interest rates at a record low and said the region's economy showed little sign of recovering before the end of the year. In economic news, Canada's trade deficit fell unexpectedly in September as exports increased and imports were unchanged, Statistics Canada data indicated. Trade is a major driver of Canada's economy and analysts cite the problems faced by exporters, such as a strong Canadian dollar and weak foreign markets, as reasons for sluggish growth in recent months. "The currency doesn't want to garner any kind of support from what ordinarily would be a positive report," said Michael Gregory, senior economist at BMO Capital Markets. Less positive for the Canadian economy was a report that showed Canadian housing starts fell in October as both single and multiple urban starts slumped. The Canada Mortgage and Housing Corp's report confirmed the country's once-booming housing market was slowing further. South of the border, the U.S. trade deficit narrowed last month as well on increasing exports, suggesting global demand for U.S. goods was holding up despite the debt crisis in Europe. Separately, Bank of Canada Governor Mark Carney repeated warnings made on Wednesday about a possible recession in Canada if Washington does not avoid the so-called fiscal cliff. Policy makers have "flexibility" to deal with that if it happens, he said. "That did capture some attention," noted RBC's Chandler. While a comprehensive agreement to avoid the automatic spending cuts and tax increases of the so-called fiscal cliff is possible, a more likely scenario is for political leaders to find a temporary fix to buy time until the new Congress and Obama are sworn in, which is in January. The price of Canadian government debt rose across the curve. The two-year government of Canada bond was up half a Canadian cent to yield 1.075 percent, while the benchmark 10-year bond added 28 Canadian cents to yield 1.714 percent.