* C$ falls more than 2 U.S. cents
* U.S. data suggests road to recovery still bumpy
* Bonds head higher as equities tumble
* Bank of Canada in focus on Thursday (Adds details throughout, additional comment)
By Ka Yan Ng
TORONTO, June 3 (Reuters) - Reduced risk appetite pulled the Canadian dollar sharply lower against the U.S. currency on Wednesday as equity markets and oil prices extended their declines.
The currency fell as low as C$1.1119 to the U.S. dollar, or 89.94 U.S. cents, in concert with its commodity-led cousins, the New Zealand and Australian dollars, which suffered deeper losses.
That is one of the sharpest one-day drops since the height of the financial crisis in the fall, said Doug Porter, deputy chief economist at BMO Capital Markets.
The currency ended the session at C$1.1084 to the U.S. dollar, or 90.22 U.S. cents, down from C$1.0810 to the U.S. dollar, or 92.51 U.S. cents, at Tuesday's close.
The U.S. dollar rose against a basket of major currencies as a sharp fall in stocks trimmed risk appetite in the market and rekindled safe-haven demand for the greenback. [ID:nN0382117]
"Some of the currencies that have done the best on the upside on the increasing risk appetite, improvement in equity markets, improvement in commodity markets, they're all finding those positions reversed. Canada is in that pack," said Mark Chandler, fixed income strategist, at RBC Capital Markets.
Global stocks and oil fell hard after a batch of weak U.S. economic data and an unexpected rise in crude inventories suggested the road to recovery is still bumpy. [MKTS/GLOB] [ID:nSP477138]
The next major event on tap for market players is the Bank of Canada's rate announcement on Thursday. The rate decision itself should produce no surprises since the central bank has conditionally committed to leaving interest rates low, currently at 0.25 percent.
But market watchers hope the bank will address the currency's surge -- in May alone it rose a massive 9.3 percent -- as well as offer further guidance on its framework for unconventional policy. [ID:nN02506478]
"I think it's basically going to be a 'lay of the land' where they'll probably suggest that overall it looks like things have modestly improved," said Porter.
"But they'll probably put out a few major caveats, one of which is that we're not completely out of the woods by any means, and also they will probably raise the strengthening of the Canadian dollar as a potential dampener on any recovery."
BONDS GAIN
Canadian bond prices were higher across the curve, partly benefiting from the debt's safe haven status in light of declining equity markets.
Toronto's main index fell 2.8 percent on Wednesday, while U.S. stocks were also in the red.
Some economic reports released on Wednesday suggested the economic recovery in the United States may have stalled, giving bonds a small bump. [ID:nN03345672]
"It's a modest decline in yields, given what we've seen in equities, said Chandler. "But to be fair, (the data) didn't add a whole lot to the mix."
The benchmark two-year government bond rose 14 Canadian cents to C$100.19 to yield 1.153 percent, while the 10-year bond gained 70 Canadian cents to C$103.50 to yield 3.335 percent.
The 30-year bond rose 89 Canadian cents to C$117.49 to yield 3.960 percent. The comparable U.S. Treasury issue yielded 4.442 percent.
Canadian bonds outperformed U.S. treasuries across the curve. The Canadian 30-year bond was 48.1 basis points below the U.S. 30-year yield, nearly unchanged from Tuesday. (Reporting by Ka Yan Ng; editing by Rob Wilson)
