* C$ weakens to C$0.9526 to the U.S. dollar, or $1.0498
* C$ dragged by falling commodities, proximity to U.S.
* Conservative majority win supportive of CAD vs crosses
* Bonds edge higher, outperform Treasuries
By Claire Sibonney
TORONTO, May 3 (Reuters) - Canada's dollar slipped against the safe-haven greenback on Tuesday as a sell-off in riskier assets including equities and commodities halted an overnight rally triggered by the crushing victory of Canada's Conservatives in Monday's federal election.
Some commodity prices suffered their biggest one-day loss in two weeks on Tuesday -- pulling resource-related currencies such as the Canadian dollar down against the U.S. dollar -- on fears that the huge price gains of the past month had made everything from oil to silver too costly. [MKTS/GLOB] [O/R]
"Today it's largely about commodity price movements," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.
"It has little do with politics. It is due to the proximity with the U.S. and once again the Canadian dollar is tied more forcefully to the U.S. dollar compared to some of the overseas currencies," he added. Chandler noted that Canada's currency had risen the least against the greenback of any of the majors over the last month.
The election outcome helped the Canadian dollar catch up with other commodity-linked currencies but its rally against the U.S. dollar was short-lived.
It rose to near 3-1/2 year highs overnight, hitting C$0.9460, or $1.0571, after the Conservatives finally secured the majority government they have sought since coming to power in 2006. [ID:nN03253899]
The currency CAD=D4 ended the North American session at C$0.9526 to the U.S. dollar, or $1.0498, down from Monday's finish of C$0.9508 to the U.S. dollar, or $1.0517.
"It's positive that Canada now has an outright majority government," said Adam Cole, global head of FX strategy at RBC in London.
"The general trend during the campaign was of CAD underperformance ... which was driven by the uncertainty surrounding the surging support for the New Democratic Party. What we should see now is that trade unwinding."
With election uncertainty out of the way, employment data on Friday, which is expected to show a gain of 22,500 jobs, will be the next key driver for the Canadian dollar. ECONCA
CANADIAN BONDS OUTPERFORM
Canadian bond prices rose against the risk aversion backdrop, while the Conservatives' election win gave them the extra little boost to outperform U.S. Treasuries. [US/]
RBC's Chandler said that there should be few surprises when the Conservatives bring down their budget and that in the medium term, over two to three years, they should be in a position to fulfill all the contingent promises that they laid out in the campaign.
The two-year bond CA2YT=RR was up 1 Canadian cent to yield 1.698 percent, while the 10-year bond CA10YT=RR added 35 Canadian cents to yield 3.162 percent.
The yield on the 10-year bond widened to around 10 basis points below its U.S. counterpart, compared with 7.5 basis points on Monday. (Additional reporting by Solarina Ho; editing by Peter Galloway)