CANADA FX DEBT-C$ hits 3-month low as U.S., Europe worries bite

* C$ ends at C$1.0038 vs US$ or 99.62 U.S. cents
    * U.S. fiscal cliff, Europe still in focus
    * U.S. retail sales fall in October

    By Claire Sibonney
    TORONTO, Nov 14 (Reuters) - The Canadian dollar dropped to a
more than three-month low against its U.S. counterpart on
Wednesday as investors focused on uncertainty over U.S. budget
negotiations and Europe's debt crisis.
    Investors are grappling with the impact of the U.S. "fiscal
cliff," a series of mandated tax hikes and spending cuts that
start to take effect early next year.
    Taking a hard line in his opening bid before he begins
fiscal talks with U.S. lawmakers later in the week, President
Barack Obama pushed for his proposal to have the wealthy pay
more taxes as a way to tame the federal deficit.
    "We are in a risk-off type of environment, and I think this
will probably be the case until there's a little more clarity on
the U.S. fiscal cliff," said Carlos Leitao, chief economist at
Laurentian Bank Securities in Montreal.
    Investors were also awaiting any signs of progress in
approving aid for Greece, while a wave of strikes across Europe
to protest against spending cuts and tax hikes kept the focus on
the region's debt crisis.  
    The Canadian dollar ended the North American
session at C$1.0038 versus the U.S. dollar, or 99.62 U.S. cents,
softer than Tuesday's North American finish of C$1.0019, or
99.81 U.S. cents. Earlier, the currency hit C$1.0041, or 99.59
U.S. cents, its weakest level since Aug. 3.
    Still, the Canadian dollar was holding in relatively well
compared to the steep selloff in North American equity markets.
    "We are in a strange world where the Canadian dollar should
be significantly lower," added Leitao, also pointing to
Tuesday's downbeat domestic fiscal update on the back of a weak
global economy that has hurt prices for Canada's exports of oil
and other commodities. 
    "At some point I guess money markets will notice that but so
far they haven't."
    Adding to the cautious sentiment, the U.S. government
reported retail sales fell in October for the first time in
three months as superstorm Sandy slammed the brakes on
automobile purchases, suggesting spending lost momentum early in
the fourth quarter. 
    Market players were more concerned, however, with how the
United States will avert potential fiscal constraint in early
2013 that threatens to throw the world's biggest economy back
into recession.
    "That's by and large the main theme that's been filtering
through the markets," said Mazen Issa, macro strategist at TD
    TD was eyeing U.S. dollar resistance versus Canada's around
C$1.0040 and support in the C$0.9985-95 area.
    Prices for Canadian government debt were little changed
across the curve, mostly underperforming U.S. Treasuries. 
    The two-year bond was up 1 Canadian cent to yield
1.072 percent, while the benchmark 10-year bond was
down 6 Canadian cents to yield 1.700 percent.