* C$ pares losses to $1.0093
* Breach of C$0.9980 may set the stage for run to C$1.0240
* Bond prices soar on safety bid
By Ka Yan Ng
TORONTO, March 15 (Reuters) - The Canadian dollar dived to its lowest level in more than four weeks against the U.S. dollar on Tuesday morning as the market rushed to the safe-haven greenback on growing fears of a radiation catastrophe in Japan.
Aversion to risk also drove world stock markets lower with Japanese equities falling more than 10 percent .N225.
The price of oil -- a leading factor in the Canadian dollar's direction -- also dropped sharply. [MKTS/GLOB] [O/R]
The Canadian dollar fell as low as C$0.9974 to the U.S. dollar, or $1.0026, its weakest point since Feb. 11, plunging out of the recent range between C$0.97 and C$0.98 that it had been locked in for most of the past two weeks.
By 9:20 a.m. (1320 GMT), the Canadian dollar had pared losses to C$0.9908 to the U.S. dollar, or $1.0093, down steeply from Monday's close at C$0.9726 to the U.S. dollar, or $1.0282.
"The whole stampede into risk aversion is forcing this U.S. dollar/Canada correction," said Mike O'Neill, managing director at Knightsbridge Foreign Exchange. He said if the currency breaches C$0.9980, it could set the stage for a return to C$1.0240, a level not seen since December.
He said the Canadian dollar has been "extremely overbought" for some time, and that a correction has long been overdue.
Bonds were well-supported by the flight-to-safety bid, pushing prices higher across the curve. The two-year Canadian government bond CA2YT=RR surged 25 Canadian cents to yield 1.544 percent, while the 10-year bond CA10YT=RR advanced 61 Canadian cents to yield 3.148 percent.
Market players also looked ahead to Tuesday's U.S. Federal Reserve policy meeting, which was expected to result in no change in policy stance. The U.S. central bank meeting's "importance is diminishing" said O'Neill, pointing to the focus on Japan developments. (Reporting by Ka Yan Ng; editing by Peter Galloway)