* C$ sags to 95.41 U.S. cents in risk averse trading
* Bonds mixed, eye 30-year auction
By Ka Yan Ng
TORONTO, May 19 (Reuters) - Canada's dollar slumped to its lowest in more than a week against the U.S. currency on Wednesday as unease about regulation to come was triggered by Germany's ban on naked short selling of some securities.
The fall extended Tuesday's move as investors took their cue to abandon riskier assets from the tumbling euro on festering concerns deep government spending cuts in Europe will stifle growth.
Germany's limits on naked short-selling, when an investor sells shares without borrowing them first, apply to shares of the country's 10 most important financial institutions. [ID:nN18512882].
The price of oil added to the drag on Canada's commodity-linked currency, sliding to its lowest in more than seven months to $68 a barrel. [O/R]
At 8:10 a.m. (1205 GMT), the Canadian dollar CAD=D4 was at C$1.0481 to the U.S. dollar, or 95.41 U.S. cents, down from C$1.0370 to the U.S. dollar, or 96.43 U.S. cents, at Tuesday's close.
"Ultimately Canada is going to be on the defensive today," said Eric Lascelles, chief Canada macro strategist, at TD Securities. "The main driver will remain the European crisis and to try and predict the next step that policymakers might make, or that markets might pursue."
"The only thing you can say with certainty is that the volatility does persist."
The currency steadily declined throughout the overnight session, and in early North American action hit C$1.0518 to the U.S. dollar, or 95.08 U.S. cents, its lowest since May 7.
Canadian bonds prices were mixed across the curve, tracking U.S. Treasuries, with muted safe haven flows as pessimism reigned and ahead of U.S. inflation data. [US/]
"We think U.S. inflation could be soft, that could present a bond bullish risk," said Lascelles. "On a relative basis, there's probably scope for Canadian bonds to underperform the U.S."
The U.S. consumer price index data is expected to show a tame 0.1 percent rise in April, according to Reuters forecasts. ECON
Besides developments in Europe and movements on stock indexes, investors will also be eyeing Canada's auction of 30-year bonds and wholesale trade data for March.
The two-year government bond CA2YT=RR was up 1 Canadian cent at C$99.48 to yield 1.762 percent, while the 10-year bond CA10YT=RR dropped 10 Canadian cents to C$100.77 to yield 3.830 percent.
(Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)