* Canadian dollar rises 0.8 percent against greenback
* U.S. announces $50 billion in liquidity measures
* Bond prices drop sharply as safe-haven bid unwinds
By John McCrank
TORONTO, Sept 19 (Reuters) - The Canadian dollar rose to its highest point in three weeks against a generally stronger greenback on Friday, helped by the U.S. government's announcement of a $50 billion plan to boost liquidity in money markets, which sent markets soaring.
Canadian bond prices tumbled on a sharp unwinding of the recent safe haven bid for government debt.
At 9:45 a.m. (1345 GMT) the Canadian dollar was at C$1.0535 to the U.S. dollar, or 94.92 U.S. cents, up from C$1.0618 to the U.S. dollar, or 94.18 U.S. cents, at Thursday's close.
"The (U.S.) government is bailing out everything that moves," said Eric Lascelles, chief economics and rates strategist at TD Securities.
The U.S. Treasury Department said it would use $50 billion to guarantee money-market mutual funds in the latest step to try to stem the ongoing financial crisis. See [ID:nN19477884]
Other steps taken in the United States included curbing short-selling and crafting a sweeping plan to clean up toxic mortgage debt.
"You start getting these ideas that we are potentially seeing the initial stages of the end of this whole crisis for the U.S. financial system and the U.S. economy," said David Watt, senior currency strategist at RBC Capital Markets.
The optimism over the plan sent global markets higher and helped extend a rally in commodities on hopes that recovering markets would contribute to stronger demand.
More than 50 percent of Canadian exports are commodities, and the surge in their prices helped give the Canadian dollar a lift.
BONDS SELL OFF
Canadian bond prices dropped sharply as the big rally in the stock markets and the better mood among investors cut away the safe haven bid for government debt.
The U.S. financial bailout package will have implications for U.S. Treasuries, said TD's Lascelles, and the Canadian bond market is heavily influenced by its larger counterpart.
"Even before the latest announcements, you had probably close to a trillion dollars and you've basically tacked on another trillion in the last day or two," said Lascelles.
"I don't think it will break the bank, but it certainly will require substantially more Treasuries and there is a price to be paid for that and I've calculated that you're probably talking 30 or 40 or even more basis points higher in U.S. yields to accommodate that additional sovereign risk."
There was no economic data in Canada on Friday, but next week starts off with a couple of key indicators, with retail sales numbers for July on Monday and inflation data for August on Tuesday.
The two-year bond fell 77 Canadian cents to C$99.73 to yield 2.878 percent, while the 10-year dropped C$1.45 to C$104.50 to yield 3.692 percent.
The yield spread between the two-year and 10-year bond was 77.4 basis points, down from 81.9 basis points at the previous close.
The 30-year bond tumbled C$1.50 to C$114.90 for a yield of 4.110 percent. In the United States, the 30-year Treasury yielded 4.361 percent.
The three-month when-issued T-bill yielded 2.27 percent, up from 1.50 percent at the previous close. (Reporting by John McCrank; Editing by Peter Galloway)