* C$ falls to close at C$1.0317 to US$, or 96.93 U.S. cents
* On the week C$ rises 1.2 percent against US$
* Euro zone concerns add to risk aversion
* CRB commodities index hits 3-month low
* Bond prices higher across the curve (Adds details, quote)
By Claire Sibonney
TORONTO, May 14 (Reuters) - Canada's dollar fell to its lowest level of the week against the U.S. dollar on Friday as festering worries that euro zone austerity measures could hamper economic recovery spoiled appetite for riskier assets.
The currency CAD=D4 at one point dropped more than 1.5 U.S. cents to touch a low of C$1.0379 to the U.S. dollar, or 96.35 U.S. cents, as stock markets from London to Japan tumbled, sending investors to safe-haven investments such as government bonds and the U.S. currency. [MKT/GLOB] [FRX/] [GOL/]
The Reuters-Jefferies CRB index .CRB, a global commodities benchmark, hit three-month lows as prices for oil and metals plunged, weighing heavily on Canada's resource-linked currency. [ID:nWEN4760]
Optimistic U.S. economic data including rising retail sales and industrial production, as well as expectation-beating Canadian manufacturing sales went largely unnoticed. [ID:nN14138390] [ID:nN14446129]
"Basically all Europe all the time...the data were strong and encouraging that the North American recovery is still grinding along but obviously the market has got an even bigger issue on its mind now," said Doug Porter, deputy chief economist at BMO Capital Markets.
Porter added that investors are still digesting both the good and bad news of a $1 trillion emergency aid deal aimed at preventing Greece's debt crisis from spreading -- a move that initially spurred riskier assets, including the Canadian dollar, to rally at the start of the week.
"At the end of the day no matter what fixes the Europeans can put together, they still have an enormous fiscal issue that they've got to come to terms with and that's going to equal very slow growth in the years ahead," he said.
The Canadian dollar CAD=D4 finished the North American session at C$1.0317 to the U.S. dollar, or 96.93 U.S. cents, down from C$1.0205 to the U.S. dollar, or 97.99 U.S. cents, at Thursday's close.
"I think, at the moment, it's just uncertainty," said Jacqui Douglas, currency strategist at TD Securities.
"No one really knows what's going to happen. No one knows if there's going to have to be any sort of restructuring or any kind default. That's just the greatest fear right now."
Still, the Canadian dollar was 1.2 percent higher versus the greenback on the week and held near multiyear highs against the euro and sterling.
Porter said the outlook for the currency remains bullish.
"Our view is that the Canadian dollar will begin to strengthen again when the markets calm down a bit about the European situation," he added.
"It could be a rough go for the next week or two but looking further out we think the Canadian dollar will regain its equilibrium and begin to rise again."
Canadian bond prices jumped across the curve, following U.S. Treasury issues, as persistent worries over the euro zone's debt crisis led investors to ditch stocks for the safer harbor of government debt. [US/]
The two-year government bond CA2YT=RR climbed 21 Canadian cents to C$99.35 to yield 1.826 percent, while the 10-year bond CA10YT=RR surged 56 Canadian cents to C$100.51 to yield 3.440 percent.
Canadian bonds outperformed their U.S. counterparts at the short end of the curve, but lagged at the long end. The Canadian 10-year bond yield was 2 basis points below the U.S. 10-year yield, compared with 3.1 basis points below on Thursday.
"It's become a lot closer call again on whether the Bank of Canada will be willing to tighten (monetary policy) amid this turbulence we're seeing in financial markets," Porter said.
Bond prices tend to fall when interest rates go up as their low-yielding fixed payments seem less lucrative compared with rising yields on other investments and vice versa.
"It's not obvious. Most forecasters out there are still clinging to the view, including us, that the bank will start to raise rates in June but the debate has not ended by any means."
Looking further out, Porter said: "Typically the go-to area in times of stress is the U.S. Treasury market and as so often happens during flight to safety, the long end in the U.S. market will benefit the most." (Additional reporting by Jennifer Kwan; editing by Peter Galloway)