* C$ drops to $1.0046
* Bonds rise in safe-haven bid
* Fears rise that Japan nuclear crisis is out of control (Adds details)
By Ka Yan Ng
TORONTO, March 16 (Reuters) - The Canadian dollar dropped sharply against the U.S. currency on Wednesday afternoon, trapped in a global rush to the exits from risky assets sparked by the nuclear crisis in Japan.
North American equity markets tumbled, led by a more than 2 percent drop in U.S. shares, as news reports about Japan's crisis grew darker and deepened investor fears.
The U.N. nuclear watchdog chief said the situation at the crippled Fukushima Daiichi nuclear power plant in Japan was "very serious". The crisis appeared to be spinning out of control after workers withdrew briefly from the stricken power plant because of surging radiation levels and a helicopter failed to drop water on the most troubled reactor. [ID:nLDE72E24B] [ID:nWEA9026]
"Equities are bailing and the global backdrop is speaking to a risk-off environment. The events that are transpiring and unfolding in Japan are the catalysts for much of the price action in currencies," said Jack Spitz, managing director of foreign exchange at National Bank of Canada.
"The Canadian dollar will underperform in a market environment that speaks to risk aversion. Today is no different. The headlines are that much bolder these days."
He said there was a major flight to traditional safe-haven currencies, including the U.S. dollar, the Swiss franc and the Japanese yen.
The Canadian dollar fell as low as C$0.9968 to the U.S. dollar, or $1.0032, and was within 6 ticks of the low on Tuesday, when it fell 2-1/2 cents before paring losses.
At 2:25 p.m. (1825 GMT), the Canadian dollar was at C$0.9954 to the U.S. dollar, or $1.0046, down from Tuesday's close of C$0.9840 to the U.S. dollar, or $1.0163.
Some currency watchers said Japan's earthquake and unfolding radiation disaster will likely drive Canada's currency below parity with the U.S. dollar in the near term, for the first time since Feb. 1, as investors dump assets tied most closely to global economic growth. [ID:nN15236117]
As part of the safe-haven bid, investors rushed to U.S. Treasuries. Canadian government bonds also rose, but mostly underperformed except in the short-dated issues.
The two-year Canadian government bond CA2YT=RR soared 20 Canadian cents to yield 1.523 percent, while the 10-year bond CA10YT=RR advanced 50 Canadian cents to yield 3.141 percent. (Reporting by Ka Yan Ng; editing by Peter Galloway)