* C$ unwinds earlier gains, slips to 77.23 U.S. cents
* Bank of Canada cuts overnight rate to 0.5 percent
* BoC may take extra steps to pump money into system
* Bonds mixed; short-end rises, long-dated falls (Adds details)
By Ka Yan Ng
TORONTO, March 3 (Reuters) - The Canadian dollar wiped out early gains against its U.S. counterpart on Tuesday and hit a three-month low after the Bank of Canada cut interest rates and hinted for the first time that it may turn to unorthodox measures to further stimulate the economy.
The Bank of Canada cut its key overnight rate by half a percentage point to 0.5 percent, a record low, and said it could use additional monetary stimulus “through credit and quantitative easing.”
Measures such as buying assets in the market or through other unconventional methods to expand the money supply may be some options the central bank is considering and pledged to unveil when it releases it Monetary Policy Report in April.
“You’ve got a whole gamut of things coming out of this policy statement to suggest that rates are going to remain low in Canada for a considerable amount of time and you’ve got the potential for quantitative ease,” said Stewart Hall, an economist at HSBC Canada.
At 10:45 a.m. (1545 GMT), the Canadian currency CAD= was at C$1.2948 to the U.S. dollar, or 77.23 U.S. cents, down from C$1.2914 to the U.S. dollar, or 77.44 U.S. cents, at Monday’s close.
At one point it fell as low as C$1.2962 to the U.S. dollar, or 77.15 U.S. cents before recovering a bit.
The currency was at C$1.2845 to the U.S. dollar, or 77.85 U.S. cents, ahead of the rate announcement as the U.S. dollar — which has benefited from its safe haven status — weakened with Wall Street set to recover some of the previous day’s losses and after the Reserve Bank of Australia left interest rates on hold.
The market may turn to track the price of oil CLc1, a key Canadian export and a driver of the currency’s movement, as well as movements in equity markets.
The Bank of Canada announcement helped to lift short-dated issues, while longer-dated debt reacted to equity markets.
The interest-rate sensitive two-year bond extended the previous session’s gains, rising 8 Canadian cents to C$103.02 to yield 1.000 percent. The 10-year bond slipped 3 Canadian cents to C$106.55 to yield 3.001 percent.
The 30-year bond lost 62 Canadian cents to C$123.85 to yield 3.641 percent.
“The short end is adjusting to the 50 basis point rate cut. The long end is pretty much following the direction of the U.S. Treasury market, which in turn is reacting to the bear market bounce in stocks,” said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
U.S. stocks, which slid to 12 year lows on Monday, pared early gains on Tuesday, following cautious comments from U.S. Federal Reserve Chairman Ben Bernanke on the economy’s prospects. (Reporting by Ka Yan Ng and Jennifer Kwan in Toronto, and Steven C. Johnson in New York; editing by Rob Wilson)