* C$ weakens to C$0.9816, or $1.0187
* Bond prices higher across the curve
* Global economic outlook, geopolitical concerns weigh
* Federal election in spotlight, but little impact seen
By Solarina Ho
TORONTO, March 23 (Reuters) - The Canadian dollar weakened against the U.S. currency on Wednesday as concerns over the global economic outlook, the volatile oil market and worries over the situation in Japan overshadowed a likely Canadian election following the rejection of a federal budget.
The minority Conservative government promised to cut Canada's deficit by a quarter this year and return to surplus by 2015, but the three opposition parties said they would vote against the budget plan, a move that will trigger the country's fourth federal election in less than seven years. [ID:nN22192715]
"I don't think it'll really have much market impact," said David Watt, senior currency strategist at RBC Capital Markets, noting the debate over surpluses.
"We've got a number of countries in the EU periphery on the cusp of wrenching austerity program...Fact of the matter is, we're in much better shape than many other nations...an election is not going to upset that backdrop."
Overseas, the euro weakened broadly ahead of a crucial vote in Portugal that could bring down the government. The country's political and financial crisis reminded investors of the seriousness of the euro zone's debt crisis. [FRX/]
Continued tensions in Libya and the Middle East, the UK budget and wariness over the possibility Japan could intervene on the yen were other factors weighing on traders.
Oil held onto gains on fears that unrest in the Middle East and North Africa could spill over into neighboring oil rich countries. Stronger oil has typically been a boon for the commodity-linked Canadian dollar, but concerns over the impact of high-flying prices on the global economic recovery are also coming into play. [O/R]
"A number of these risks suggests that a degree of caution is in markets," said Watt.
At 8:18 a.m. (1218 GMT), the currency CAD=D4 stood at C$0.9816 to the U.S. dollar, or $1.0187, down from Tuesday's North American finish of C$0.9799 to the U.S. dollar, or $1.0205.
Jack Spitz, the managing director of foreign exchange at National Bank Financial Group expected the Canadian dollar to trade within the C$0.9765 to C$0.9855 range.
Safe-haven bids drove Canadian bond prices higher, tracking Treasury prices south of the border. Investors also expressed concerned over the cost of post-earthquake reconstruction and the spread of radiation in Japan. [US/]
"In general, when the environment is somewhat cautious you are going to see people more eager to be in bonds than other asset classes," said Watt.
The two-year bond CA2YT=RR was up 1.5 Canadian cents to yield 1.662 percent, while the 10-year bond CA10YT=RR added 4 Canadian cents to yield 3.181 percent. (Reporting by Solarina Ho; Editing by Theodore d'Afflisio)