CANADA FX DEBT-C$ hits 3-yr low as market eyes BoC policy decision

* C$ at C$1.0649 vs US$, or 93.91 U.S. cents
    * C$ a 3-year low against US$, weaker vs most other
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Dec 3 (Reuters) - The Canadian dollar hit its
lowest level in more than three years on Tuesday on investor
speculation that the Bank of Canada could strike a more dovish
tone in a policy decision due later this week.
    The currency has fallen in four of its last five sessions,
dropping through key support levels as bearish sentiment builds.
    The Bank of Canada will release its interest rate and policy
decision on Wednesday following its first meeting since a policy
shift in October, when the central bank dropped any mention of a
rate hike.
    "The Bank of Canada is likely to sound very dovish
tomorrow," said Camilla Sutton, chief currency strategist at
Scotiabank in Toronto.
    "They're unlikely to cut rates because they still do have
financial stability risk, but really it's the shift in tone."
    The Bank of Canada is seen as all but certain to hold rates
at 1 percent, where they have been since 2010. The recent policy
shift pushed out market expectations for the next rate hike into
    The Canadian dollar ended the North American
session at C$1.0649 to the greenback, or 93.91 U.S. cents,
weaker than Monday's close of C$1.0641 or 93.98 U.S. cents.
    The loonie traded as far as C$1.0673, its lowest level since
the end of August 2010. The low previously hit this year in July
at C$1.0609 had represented significant support for the
currency, which it first broke through late last week.
    "Right now is a pretty key level, just being a fresh cycle
high. If we push through here, it could get a lot uglier for the
Canadian dollar," said Scott Smith, senior market analyst at
Cambridge Mercantile Group in Calgary.
    If the loonie pushes through current levels, C$1.07 will be
the next one to watch, Smith said.
    The Canadian dollar was also weak against most of its other
major currency pairings, including the euro and the British
pound after data showed Britain's construction sector
unexpectedly picked up more speed in November. 
    The euro hit an 3-1/2-year high against the
Canadian dollar, while the pound struck a 4-year
    Investors will also be taking in a number of economic
reports out of the United States this week, including consumer
sentiment, third-quarter gross domestic product and the
closely-watched unemployment report.
    The data this week could be key in calibrating market
expectations for when the Federal Reserve may start to wind down
its economic stimulus. 
    Monday's better-than-expected factory data has boosted
sentiment that there is an outside chance the start of tapering
could come at the Fed's next meeting later in December, said
    The two-year bond was up 7-1/2 Canadian cents to
yield 1.071 percent, while the benchmark 10-year bond
 rose 19 Canadian cents to yield 2.584 percent.