* Canadian dollar falls 1.6 pct versus greenback
* Bonds rally on safe haven bid as equities fall
* Housing market shows more signs of slowing
By John McCrank
TORONTO, Oct 6 (Reuters) - The Canadian dollar fell to its weakest level against the U.S. dollar since May 2007 on Monday as fears of more fallout from the global financial crisis froze money markets, putting a premium on the greenback and undercutting support for commodities.
Bond prices rose as investors looked for a safe place to park their cash in response to huge losses on the stock markets.
The Canadian dollar closed the North American session at C$1.0992 to the U.S. dollar, or 90.98 cents, down from C$1.0815 to the U.S. dollar, or 92.46 U.S. cents, at Friday's close.
The currency fell 1.6 percent against its U.S. counterpart after dropping 4.5 percent last week, mostly in response to a stronger U.S. dollar.
"Everything is getting clobbered by the U.S. dollar," said David Watt, senior currency strategist at RBC Capital Markets.
Lenders have been hoarding cash in response to a bevy of collapsing financial institutions in the United States and Europe.
That has decreased the supply of U.S. dollars in the foreign exchange markets, making them more expensive to buy relative to other currencies.
The American dollar has also regained its status as a safe haven asset, in part due to deteriorating economic outlooks elsewhere in the world, which have weakened other currencies.
"To the extent that people are just fearful in general, it's obviously not a great environment for any currency that's sensitive to the global cycle, and that is Canada," Watt said.
About half of Canada's exports consist of natural resources such as oil, natural gas, gold, and base metals.
As worries grow about the possibility of a global recession, commodity prices have tumbled on expectations of faltering demand. The Reuters-Jeffries CRB index CRB, a global commodities benchmark, was trading on Monday at its lowest point since October 2007.
"For Canada, much weaker net trade is on tap and any supposed terms of trade advantage is being lost as commodities tumble," said Derek Holt, economist at Scotia Capital, in a note.
He added that with Canada's housing market softening, retail sales trending down, and business investments declining, the Canadian economy may be in for a period of prolonged weakness.
"This is not just made-in-the-USA weakness as Canada faces its own homegrown recession signals," he said.
BOND PRICES RALLY
Canadian bond prices rose on a safe-haven bid as fears of a global recession hit equity markets, knocking the Toronto Stock Exchange below the 10,000 point mark for the first time since July 2005.
"That was edging dangerously close to putting trading halts on the TSX, so this is a very volatile environment, a very edgy environment, and you can't expect anything but a flight to safety," said Charmaine Buskas, senior economics strategist at TD Securities.
The Bank of Canada moved to increase liquidity in Canadian markets, injecting C$2.375 billion through special purchase and resale agreements. It also left C$2.584 billion in its large value transfer system, rather than the C$25 million it normally leaves, to ensure easy settlement of balances between banks.
On the data front, the value of building permits fell by more than expected in August, down by 13.5 percent from July. The nonresidential sector fell 19.3 percent, while the residential sector dropped by 9.3 percent.
"That probably helped the rally that was already under way from the global credit market turmoil gain some traction," Buskas said.
The Ivey Purchasing Managers Index rose to 61.0 in September from 51.5 in August. A reading of 50.0 indicates that activity remained flat from the preceding month, while a higher reading indicates an increase and a lower reading reflects a slowing or decrease.
The two-year bond rose 37 Canadian cents to C$100.87 to yield 2.332 percent. The 10-year bond gained 90 Canadian cents to C$106.30 to yield 3.475 percent.
The yield spread between the two-year and the 10-year bond rose to 118 basis points, from 115 basis points at the previous close.
The 30-year bond added C$1.65 to C$116.90 for a yield of 4.003 percent. In the United States, the 30-year Treasury yielded 3.965 percent.
The three-month when-issued T-bill yielded 1.55 percent, unchanged from the previous close. (Reporting by John McCrank; Editing by Peter Galloway)