* Canadian dollar falls 0.4 percent against the greenback
* Q3 GDP bests forecasts, up 1.3 pct on annualized basis
* Bonds rise on safe haven bid as stocks tumble
By John McCrank
TORONTO, Dec 1 (Reuters) - The Canadian dollar fell against the U.S. dollar on Monday as political uncertainty and a bleak economic outlook outweighed a report showing Canada's economy registered its strongest growth in a year in the third quarter.
Canadian bond prices rose on a safe haven bid in response to falling equity markets.
At 10:30 a.m. (1530 GMT), the Canadian dollar was down 0.4 percent against the U.S. dollar, at C$1.2440, or 80.39 U.S. cents. That's down from C$1.2370 to the U.S. dollar, or 80.70 U.S. cents, at Friday's close.
The currency weakened off to C$1.2495, or 80.03 U.S. cents, early in the session, largely driven by news that Canada's three opposition parties have reached a tentative deal to defeat the minority Conservative government in Parliament and then put together a coalition.
"The bottom line here is that political risk has been priced into the Canadian dollar," said Shawn Osborne, chief currency strategist at TD Securities.
That uncertainty overshadowed a report showing Canada's gross domestic product bucked the negative trend of most other countries in the world in the third quarter. The economy grew 1.3 percent on an annualized basis in the third quarter, beating the market forecast of 1.1 percent growth.
While the headline number was solid, the details of the report showed that domestic spending is slowing, and nearly all analysts believe Canada's economy will weaken moving forward.
"There's no escaping the fact that Canada can't continue in splendid isolation from the rest of the world," Osborne said.
He said he expects the Canadian dollar to trade in a range of C$1.2275 to C$1.2475 in the short term, or at least until the uncertainly surrounding the Canadian government is resolved.
Canadian bonds rallied in response to plunging North American stock markets, which increased the allure of safe haven government debt, said Mark Chandler, fixed income strategist at RBC Capital Markets.
The Toronto Stock Exchange's main index was down more than 600 points early in the session on Monday.
Chandler said the GDP data did not have an impact on bonds because it is not relevant to the economic weakness expected to show up in fourth quarter data, which will reflect the period during which the economic crisis really picked up.
The Canadian overnight Libor rate LIBOR01 was 2.4833 percent, down from 2.5000 percent on Friday.
Friday's CORRA rate CORRA= was 2.2552 percent, up from 2.2518 percent on Thursday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 13 Canadian cents to C$102.19 to yield 1.630 percent. The 10-year bond gained 88 Canadian cents to C$108.38 to yield 3.218 percent.
The yield spread between the two-year and 10-year bond was 167 basis points, down from 179 at the previous close.
The 30-year bond climbed C$1.72 to C$120.47 to yield 3.815 percent. In the United States, the 30-year Treasury yielded 3.326 percent. (Editing by Peter Galloway)