* 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 Securities. 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.