* Canadian dollar falls 0.2 percent versus greenback
* U.S. Federal Reserve backs up commercial paper market
* Bond prices fall on Fed move, unwind from Monday
By Jennifer Kwan
TORONTO, Oct 7 (Reuters) - The Canadian dollar fell against the U.S. dollar again on Tuesday as persistent concerns about fallout from the global financial crisis overcame a rebound in commodity prices.
Bond prices fell as investors sought bargains in equity markets following Monday's big stock market drops.
At 9:50 a.m. (1350 GMT), the Canadian dollar was at C$1.1013 to the U.S. dollar, or 90.80 cents, down from C$1.0992 to the U.S. dollar, or 90.98 cents, at Monday's close.
The currency was 0.2 percent lower against its U.S. counterpart after dropping 1.6 percent on Monday, mostly in response to a stronger U.S. dollar.
"We've seen some further weakness in the Canadian dollar as generally the U.S. dollar remains fairly firm," said Doug Porter, deputy chief economist at BMO Capital Markets.
A dwindling supply of U.S. dollars in foreign exchange markets was making them more expensive to buy relative to other currencies.
The U.S. 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.
"Of course, the big news overnight was the aggressive rate cut by the Australian central bank," Porter said. "That has taken another swipe at the Australian dollar, and it's also ramped up the chatter of possibly wider rate cuts more broadly."
The Reserve Bank of Australia cut interest rates by 100 basis points to 6.0 percent, putting pressure on other central banks to lower the cost of borrowing in the face of a possible global recession.
A rise in commodities prices failed to give the resource-linked Canadian dollar a boost as concerns over weakening global demand dominated.
"We're seeing more concerns about the potential for further weakness in commodities markets as the global economy slows further," Porter said.
About half of Canada's exports consist of commodities such as oil, natural gas, gold, and base metals.
BOND PRICES FALL
Canadian bond prices were lower in an unwind of Monday's safe-haven bid when the Toronto Stock Exchange fell below the 10,000 point mark for the first time in more than three years.
Adding to the drop was an announcement by the U.S. Federal Reserve that it would create a special purpose facility to begin buying commercial paper in a move to calm jittery markets.
"We've got yields up on the announcement by the Fed that they're going to be buying commercial paper directly," said Mark Chandler, fixed income strategist at RBC Capital Markets.
"It's unprecedented -- the Fed buying unsecured assets like that," he added. "What it does is it lends some hope that the logjam of commercial credit at the very front end will ease somewhat."
Yields move opposite to bond prices.
As well on Tuesday, the Bank of Canada said it will not join in coordinated central bank actions aimed at increasing U.S. dollar liquidity. It said the Canadian financial sector is currently well supported.
The Canadian overnight Libor rate LIBOR01 was 3.842 percent, up from 3.750 percent on Monday.
Monday's CORRA rate CORRA= was 2.9226 percent, down from 3.0405 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond fell 8 Canadian cents to C$101.00 to yield 2.269 percent. The 10-year bond dropped 32 Canadian cents to C$106.33 to yield 3.471 percent.
The yield spread between the two-year and the 10-year bond fell to 117 basis points from 118 basis points at the previous close.
The 30-year bond fell 65 Canadian cents to C$116.45 to yield 4.026 percent. In the United States, the 30-year Treasury yielded 4.024 percent.
The three-month when-issued T-bill yielded 1.55 percent, unchanged from the previous close. (Reporting by Jennifer Kwan; Editing by Peter Galloway)