* C$ at C$1.0200 vs US$, or 98.04 U.S. cents,
* Bond prices rise as Italian yields soar
By Claire Sibonney
TORONTO, Nov 9 (Reuters) - The Canadian dollar fell more than a penny against the U.S. dollar on Wednesday as a short-lived rally on Italian Prime Minister Silvio Berlusconi's pledge to resign evaporated.
Yields on Italian bonds shot to crisis levels above 7 percent and European stocks sank after Berlusconi's promise to resign failed to raise optimism about the country's ability to deliver on long-promised economic reforms. [ID:nL6E7M93EM]
"The immediate catalyst for the moves this morning was the increase in margins on repo trade on Italian government debt ... even though people had really been anticipating this coming at some point," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
Markets rallied in reaction to Berlusconi's promised resignation yesterday, but were still left with many questions on Wednesday.
"It still leaves a great deal of uncertainty in terms of where we go from here, whether that will ultimately force early elections which would be very market negative or whether we end up with some kind of technocrat government which would probably be market positive or whether we just end up with some sort of cobbled together coalition," said Cole.
Uncertainty was also overhanging Greece, where political leaders were scrambling unsuccessfully to find a new prime minister to lead Greece back from the brink of bankruptcy, after a plan to name a former central banker ran into trouble.
At 8:09 a.m. (1309 GMT), the Canadian dollar CAD=D3 stood at C$1.0200 versus the greenback, or 98.04 U.S. cents, down sharply from Tuesday's North American session finish at C$1.0082 against the U.S. dollar, or 99.19 U.S. cents
Data showing that Chinese industrial output grew at its weakest annual pace in a year in October was also discouraging, pushing commodity prices lower. [O/R] [MET/L]
But Cole noted that U.S. dollar strength was supporting the Canadian currency on the crosses.
He put near term support for the Canadian dollar around C$1.0220, followed by C$1.0265.
Canadian government bond prices rose alongside U.S. Treasuries as investors sough safe-haven assets.
The two-year bond CA2YT=RR was up 16 Canadian cents to yield 0.913 percent, while the 10-year bond CA10YT=RR climbed 57 Canadian cents to yield 2.116 percent. (Reporting by Claire Sibonney, editing by W Simon)