* C$ hits lowest level in nearly 3 weeks
* Dropping oil prices and equities blamed for fall
* Bond prices finish higher across curve (Recasts)
By Frank Pingue
TORONTO, Sept 24 (Reuters) - Canada's currency retreated sharply versus the U.S. dollar on Thursday, touching its lowest level in nearly three weeks, as a pullback in oil prices and equities spoiled investor appetite for riskier assets.
The move was compounded by a stronger greenback, which rose on its safe-haven allure after U.S. data showed a surprise drop in sales of existing homes in August and hinted at a less than vigorous pace of economic recovery. [ID:nN24343088]
At mid-afternoon, the Canadian dollar dropped as low as C$1.0949 to the U.S. dollar, or 91.33 U.S. cents, its lowest level since Sept. 4.
"It really got hit with the ugly stick today," said Steve Butler, director of foreign exchange trading at Scotia Capital. "You just can't fight it on a day like today when we've had a really healthy correction."
The currency faced pressure from oil prices that dropped more than 4 percent to below $66 a barrel. [O/L] Canada is a major oil exporter and its currency often moves in line with prices for the commodity.
North American equities also ended lower, with the Toronto stock market's S&P/TSX composite index <.GSPTSE> sliding 2 percent to its lowest close in nearly two weeks. [ID:nN24578145]
The Canadian dollar later moved off its session low but still ended down for the session, closing at C$1.0890 to the U.S. dollar, or 91.83 U.S. cents, down from C$1.0751 to the U.S. dollar, or 93.01 U.S. cents, at Wednesday's close.
Butler said news that some central banks, including the U.S. Federal Reserve, pared back emergency lending facilities also helped to pull the rug from under the Canadian currency. [ID:nN24448204].
The Bank of Canada said on Tuesday it would scrap two special lending facilities at the end of next month because of "improved conditions" [ID:nN22363926].
BOND PRICES END HIGHER
Canadian bond prices ended a touch higher across the curve, mirroring a move in the bigger U.S. Treasuries market, after the U.S. home sales data.
"We just followed the U.S., but the gains on the bond market weren't anything spectacular," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
Dong also said the Bank of Canada's C$3 billion auction of 2 percent Government of Canada bonds due Dec. 1, 2014 attracted fairly solid demand. [ID:nTOR005004]
The two-year bond
The 30-year bond
Canadian bonds outperformed their U.S. counterparts across much of the curve. The Canadian 30-year bond was 27.2 basis points below the U.S. 30-year yield, versus 26.6 basis points on Wednesday. (Editing by Peter Galloway)