* C$1.0385 vs US$, or 96.29 U.S. cents
* Hits 12-month low of C$1.0467, or 95.54 U.S. cents
* Month-end, quarter-end flows boost volatility
* Bond prices rally across curve
By Andrea Hopkins
TORONTO, Sept 30 (Reuters) - The Canadian dollar hit 12-month lows against the U.S. dollar early on Friday before regaining some strength in a volatile market driven by month-end and quarter-end rebalancing flows.
World stocks fell, with European shares on track to mark their biggest quarterly loss since the collapse of Lehman Bros three years ago, as European economic readings compounded pessimism over global growth.
The euro EUR= also slipped, on course for its biggest monthly drop in nearly a year, weighed down by the lack of a visible solution to the euro zone's debt woes. [MKTS/GLOB]
The Canadian currency, which slipped below parity with its U.S. counterpart last week and has continued to lose ground since, sank to its weakest point in more than a year in early trade as skittish investors took refuge in the liquidity of the U.S. dollar.
"The market, by and large, has been buying the (U.S.) dollar and if you look at the relative performance of the three biggest influences on the Canadian dollar -- equities, commodities and overall volatility -- they are all moving in a similar direction, and it is all negative for the C$," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
At 10:28 a.m. (1428 GMT), the Canadian dollar CAD=D3 was at C$1.0385, or 96.29 U.S. cents, down from Thursday's North American close at C$1.0366 to the U.S. dollar, or 96.47 U.S. cents. Earlier, it slid as low as C$1.0467, or 95.54 U.S. cents, its softest level since Sept. 8.
Spitz said month-end and quarter-end rebalancing by institutional investors who suffered stock market losses in the quarter were likely to favor the greenback through the session, putting pressure on the Canadian dollar.
"The underlying performance of equities has been materially off this month, which creates an environment whereby the hedges have to be rebalanced by buying back U.S. dollars," Spitz said.
He said there was some support for the weakening Canadian currency at C$1.0525 but more significant barriers coincident with the June to August 2010 highs at C$1.0650 to C$1.0670.
"So, in other words, there is still room for dollar-Canada to move higher," Spitz said.
Economic data out of Canada and the United States had little market impact, with global focus mostly fixed on the European debt crisis.
The Canadian economy grew in July, the second straight month of expansion, setting the stage for a positive third quarter after the second-quarter's worrying contraction. [ID:nS1E78T044]
U.S. incomes fell for the first time in nearly two years in August and consumers dug into their savings to keep spending, but a separate report showed consumer sentiment improved in late September. [ID:nS1E78T0A4]
Data that showed German retail sales suffered their biggest drop in more than four years in August compounded fears about global growth, while markets doubted the firepower of a beefed-up euro zone bailout fund.
Bond prices marched higher across the curve. The two-year Canadian government bond CA2YT=RR was up 10 Canadian cents to yield 0.891 percent, while the 10-year bond CA10YT=RR gained 40 Canadian cents to yield 2.176 percent. (Additional reporting by Claire Sibonney, editing by Rob Wilson)