* Canadian dollar at $1.1306, or 88.45 U.S. cents
* Loonie's lowest level since July 2009
* 10-yr government bond yield lowest since May 2013
(Recasts with five-year low; adds details, quotes, and updates
prices)
By Leah Schnurr
TORONTO, Oct 14 (Reuters) - The Canadian dollar dropped to
its lowest level against the greenback in more than five years
on Tuesday, breaking through the C$1.13 level as oil prices
tumbled.
The currency's nearly 1 percent fall also set a new 2014
low, taking out the previous trough of C$1.1279, which was
recorded in March. That level had been closely watched by
investors after the loonie almost dropped through it earlier
this month.
The Canadian dollar has been rolling on a downward slope
since July, pushed lower as U.S. dollar rallied on a growing
belief that the U.S. Federal Reserve will start to tighten
monetary policy before the Bank of Canada does.
Weaker prices for oil, a major Canadian export, have also
undercut the loonie and a more than 4 percent drop in U.S. crude
propelled it through key resistance barriers on Tuesday.
Also on Tuesday, Bay Street stocks officially fell into a
correction as worries over the prospects for global economic
growth again gripped the market.
"There's definitely a deteriorating sentiment overall in
markets," said Don Mikolich, executive director of foreign
exchange sales at CIBC World Markets in Toronto.
"In general, the market has been thinking that we would see
this sort of direction and it's hard to see an immediate top at
this stage" for the U.S. dollar-Canadian dollar, Mikolich said,
noting the lack of domestic economic data on tap until Friday's
inflation figures.
The Canadian dollar ended the North American
session at C$1.1306 to the greenback, or 88.45 U.S. cents,
weaker than Friday's official close from the Bank of Canada of
C$1.1217, or 89.15 U.S. cents. Most market participants in
Canada were away on Monday for the Thanksgiving holiday.
The loonie hit a session low of C$1.1313, its lowest level
since July 2009.
The next technical resistance level lies in the mid-C$1.13s,
and while a rebound in oil prices could help the loonie in the
near term, momentum is likely to the downside, Mikolich said.
The Canadian dollar entered 2014 as many investors' favorite
short position but it managed to recover through the spring and
climbed to the low C$1.06 area by early July.
But that did not last, with expectations that the Fed will
start to raise rates next year fueling the U.S. dollar to the
detriment of the loonie, a trend many analysts expect will
continue.
The yield on the two-year Canadian government
bond fell below 1 percent to hit its lowest level since
February. The two-year was up 13 cents to yield 0.985 percent.
The benchmark 10-year was at its lowest level
since May 2013, yielding 1.950 percent, up 53 cents in price.
(Editing by Peter Galloway)