* Canadian dollar falls 1.5 percent versus greenback
* Canada September wholesale trade rises unexpectedly
* Bonds rally on safe-haven bid
By John McCrank
TORONTO, Nov 20 (Reuters) - The Canadian dollar fell 1.5 percent against the U.S. dollar on Thursday as global stock markets took steep losses on recession fears, prompting U.S. investors to unwind overseas investments, benefiting the greenback.
Canadian bond prices rallied as the weakness in stocks added to the allure of relatively safe government debt.
At 9:38 a.m. (1438 GMT), the Canadian dollar was at C$1.2718 to the U.S. dollar, or 78.63 U.S. cents, down from C$1.2526 to the U.S. dollar, or 79.83 U.S. cents, at Wednesday's close.
The weakening of the currency is not a made-in-Canada story, and has more to do with a strengthening U.S. dollar, said Adam Cole, head currency strategist at RBC Capital Markets in London.
"Money is being brought back into the U.S. from overseas equity markets, having for the last four or five years built up a very large, overweight position in overseas stocks, and periods of risk aversion are seeing that money brought home to the U.S.," he said.
Cole said that trend is likely to continue, and if stock markets drop another few percent, the Canadian dollar could test the lows it hit in October. That would put the currency at its weakest point since September 2004.
The pressure on the Canadian dollar could be seen even after Canadian wholesale trade numbers for September surprised to the upside, rising 1.5 percent as auto sales rose .See [ID:nN20480398]
The market was expecting a 0.3 percent decline in the month, according to a Reuters poll.
U.S. jobless claims figures were also released on Thursday morning.
"The U.S. jobless claim numbers were truly awful, and in the perverse way the markets are trading at the moment, poor data are an excuse to buy U.S. dollars, in the sense that the immediate market reaction to the poor jobless claim numbers was for the stock market to come off again, and as it did that the (U.S.) dollar rallied," Cole said.
Canadian inflation data for October is due on Friday.
BONDS RALLY
Canadian bond prices rallied as the weakness in equities increased the allure of relatively safe government debt.
"It's a good rally in bonds and I think it will continue until at least there is some sign that the economy has hit bottom and I don't think we are there yet," said Carlos Leitao, chief economist at Laurentian Bank of Canada.
The Canadian overnight Libor rate LIBOR01was 2.5000 percent, down from 2.5583 percent on Wednesday.
Wednesday's CORRA rate CORRA= was 2.2413 percent, up from 2.2302 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 9 Canadian cents to C$101.75 to yield 1.868 percent. The 10-year bond rose 70 Canadian cents to C$106.70 to yield 3.418 percent.
The yield spread between the two-year and 10-year bond was 163 basis points, up from 158 at the previous close.
The 30-year bond added C$1.20 to C$116.70 to yield 4.011 percent. In the United States, the 30-year Treasury yielded 3.774 percent. (Editing by Peter Galloway)
