* C$ eases more than 1 cent to C$1.0698 to the U.S. dollar
* Stock reversal, commodity drop drive currency lower
* Canadian bonds mostly weaker, but outperform U.S.
By Frank Pingue and Jeffrey Hodgson
TORONTO, Oct 26 (Reuters) - The Canadian dollar fell to its lowest level in nearly three weeks on Monday, as a drop in commodity prices and retreating global stocks added to losses triggered by recent central bank comments on the currency.
North America stocks had initially opened higher, but reversed direction as commodity prices fell and risk aversion increased [.N][.TO], prompting investors to look to the safety of the U.S. dollar.
"The whole world got very unsafe very quickly this morning," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"Stock markets turned around very dramatically and in the same breath the U.S. dollar turned around very dramatically and so we've seen a big shoot-up in the U.S. dollar and it's hurt almost every currency ... Canada was no exception."
The Canadian dollar often trades based on the risk appetite of global investors and prospects for the country's commodity exports.
Oil fell more than 2 percent to below $79 a barrel on concerns that a sluggish economic recovery will keep global demand low. Gold also hit a 10-day trough. [O/R] [GOL/]
At mid-afternoon, the Canadian dollar fell to C$1.0698 to the U.S. dollar, or 93.48 U.S. cents, its lowest since Oct. 6, and down from C$1.0519 to the U.S. dollar, or 95.07 U.S. cents, at Friday's close.
The currency had already taken a hit last week after the Bank of Canada and Governor Mark Carney warned that a rally toward parity with the greenback was a risk to growth and mentioned the possibility of intervention. [ID:nN22502163]
"Obviously, Carney's comments and the Bank of Canada statement have taken a little bit of wind out of the sail of the Canadian dollar near term," said Firas Askari, head of foreign exchange trading at BMO Capital Markets.
Carney echoed the comments in a speech in Montreal on Monday, repeating the central bank's view that the current strength in the Canadian dollar would more than fully offset favorable economic developments since July. [ID:nBAC002343]
Canadian government bond prices, with no domestic data to consider until later this week, were mostly weaker, mirroring losses in U.S. Treasury bonds, which investors sold ahead of a record round of new debt auctions. [US/]
The two-year Canadian government bond
Canadian bonds mostly outperformed U.S. issues, with the 10-year yield 3 basis points below its U.S. counterpart, compared with 2 basis points above on Friday. (Editing by Rob Wilson)