* Canadian dollar plunges 3.8 percent versus greenback
* Canada creates 107,000 jobs in September
* Bonds fall with U.S. market on oversupply concerns
By John McCrank
TORONTO, Oct 10 (Reuters) - The Canadian dollar hit its lowest level since August 2005 against the U.S. dollar on Friday, largely unwinding in two weeks all its gains from the past three years, as fears of a global recession and weaker commodity prices outweighed some stronger than expected economic data.
Bond prices were lower along with the larger U.S. market, on supply concerns due to massive new issues of government debt to pay for U.S. bailout measures.
At 11:58 a.m. (1558 GMT), the Canadian dollar was down 3.8 percent against the U.S. dollar at C$1.1912, or 83.95 cents. That compares to C$1.1458 to the U.S. dollar, or 87.28 cents, at Thursday's close.
The currency touched C$1.20, or 83.33 U.S. cents, earlier in the session. The last time the Canadian dollar was worth that was on Aug. 30, 2005.
"Clearly the Canadian dollar has been completely dragged into the global financial market mayhem," said Doug Porter, deputy chief economist at BMO Capital Markets.
Fears of a global recession and dropping demand have been hammering commodity prices. U.S. crude oilCLc1 fell to under $80 a barrel after hitting over $147 a barrel in July.
"Just based on the drop in commodity prices and in oil alone, I think that would justify a big chunk of today's move," said Porter.
Canada is the biggest supplier of oil to the United States, and commodities make up around half of Canadian exports.
More than three-quarters of all Canadian exports are absorbed by the U.S. economy, which has been stunted by a recession in its housing sector and the credit crunch.
"Canada is obviously one of the most vulnerable countries to a U.S. slowdown," said Jacqui Douglas, currency strategist at TD Securities.
In economic news, a report showed Canada had its largest monthly employment gain since Statistics Canada started collecting similar data in 1976. The country added 107,000 jobs in September, although most of the increase was in part-time employment. See [ID:N10365080]
Canada's trade surplus also defied expectations, jumping to C$5.8 billion in August from C$4.2 billion in July, but the increase was due to a fall in imports, not an increase in economic activity.
Canada's currency only registered a slight bump up on the data, before resuming its downward trend.
"I guess what I find most notable... is how today's economic data have been completely brushed aside," said BMO's Porter. "I would have thought they would have provided at least a modicum of support."
The currency has shed 9.2 percent this week, more than doubling its previous biggest weekly loss since at least 1970. That happened just last week when it took a 4.5 percent nosedive. Thomson Reuters data for weekly percentage changes in the Canadian currency go back as far as 1970.
BOND PRICES FALL
Bonds were lower along with the larger U.S. market due to the massive new U.S. debt supply to fund a bevy of U.S. programs intended to free up lending.
"It's more a U.S. story filtering into Canada," said Michael Gregory, senior economist at BMO Capital Markets.
"The (U.S.) Treasury has to issue a lot of bonds to help pay for all these programs that have come into place."
The two-year bond fell 12 Canadian cents to C$101.20 to yield 2.170 percent. The 10-year bond slipped 75 Canadian cents to C$104.30 to yield 3.714 percent.
The yield spread between the two-year and the 10-year bond fell to 132 basis points from 137 basis points at the previous close.
The 30-year bond dropped C$1.05 Canadian cents to C$113.00 to yield 4.213 percent. In the United States, the 30-year treasury yielded 4.077 percent. (Reporting by John McCrank; editing by Ka Yan Ng)