* C$ falls to close at 88.31 U.S. cents
* Bonds almost unchanged, underperform U.S. counterparts
* Threat to topple government a bond market factor (Adds details, additional comment)
By Ka Yan Ng
TORONTO, June 15 (Reuters) - The Canadian dollar fell hard against the broadly firmer U.S. dollar on Monday, hitting its lowest level in more than three weeks on weaker equity markets and commodity prices.
Market watchers were keeping an eye on Canadian politics as the opposition leader in Parliament raised the possibility of fresh elections, but it was mostly a U.S.-dollar story on Monday.
The greenback strengthened -- and the Canadian dollar flagged -- after Russia expressed confidence in the U.S. currency [ID:nN1568028] and the European Central Bank said euro-zone banks face another $283 billion in writedowns. [ID:nN15135228]
The Canadian dollar closed at C$1.1324, or 88.31 U.S. cents, down from C$1.1179 to the U.S. dollar, or 89.45 U.S. cents, on Friday.
At one point, it hit C$1.1377 to the U.S. dollar, or 87.90 U.S. cents, its lowest level since May 21.
"The U.S. dollar is extremely strong across the board today. A lot of that has been driven by the weaker sentiment that we've been seeing in equity markets," said George Davis, chief technical strategist at RBC Capital Markets.
"In turn, commodities are tracking equity markets lower as well. Given these higher levels of risk aversion, which we haven't seen in a while, the Canadian dollar is getting hit on the back of that."
Toronto's main stock index closed more than 2 percent lower, partly because of lower oil prices. [ID:nN15234349]
Canada is a major oil producer and the currency was also
pressured by the drop in oil prices
The Liberal Party said it was prepared to bring down the minority Conservative government unless it received details of planned improvements to the jobless benefits system. The opposition could call a non-confidence vote this Friday, and that could lead to Canada's fourth federal election in just over five years. [ID:nN15437772]
"It's just political posturing at this point in time but I don't think it's going to have an undue effect on the Canadian dollar," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"At this stage in the game I can't see it having a huge effect on the Canadian dollar."
BONDS UNDERPERFORM TREASURIES
Canadian bond prices, unable to benefit convincingly from sagging equity markets, were almost unchanged across the curve, and, with the possibility of a Canadian election looming, underperformed their U.S. counterparts.
Bonds edged higher earlier in the session as the dropping Toronto stock market pushed bond prices higher in a flight to safety bid. Bonds and stocks typically move inversely to one another and depending on investors' risk appetite.
But analysts said the prospect of an election then acted as a weight on the bond market as political uncertainty, with its potential to repel foreign investors, could pull the Canadian currency lower.
"The U.S. Treasuries are up significantly today and Canada is unchanged, so we're underperforming dramatically. The election threat might be on the back of people's minds and have an effect there," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
The benchmark two-year government bond edged up 1 Canadian cent to C$99.72 to yield 1.395 percent, while the 10-year bond was off 5 Canadian cents at C$101.95 to yield 3.516 percent.
The 30-year bond rose 10 Canadian cents to C$117.90 to yield 3.938 percent. The comparable U.S. issue yielded 4.576 percent.
Canadian bonds mostly underperformed U.S. Treasuries across the curve. The Canadian 30-year bond was 63.8 basis points below the U.S. 30-year yield, compared with about 70 basis points below on Friday. (Additional reporting by Jennifer Kwan and Frank Pingue; editing by Peter Galloway)