By Oliver Biggadike May 14 (Bloomberg) -- Canada’s dollar fell the most in more than a week, paring a five-day gain, on concern European austerity plans will cut prices of raw materials including oil, the North American nation’s biggest export. The loonie was one of the biggest losers versus the greenback among its 16 most-active counterparts as the currencies of commodity-producing nations from Australia to South Africa to Brazil declined. The Canadian dollar advanced to near the highest level against the euro in almost nine years. “Canada’s weakening here, and oil is falling,” said Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto. “It highlights the fears in the market that Europe is a very large problem and will weigh on global growth.” The loonie slid as much as 1.7 percent to C$1.0378 per U.S. dollar in the biggest intraday decline since May 6, before trading at C$1.0327 at 4:26 p.m. in Toronto, compared with C$1.0200 yesterday. One Canadian dollar buys 96.83 U.S. cents. Crude oil for June delivery tumbled as much as 4.8 percent to $70.83 a barrel, the least since Feb. 8. The Standard & Poor’s 500 Index dropped 1.9 percent, while the S&P/TSX Composite Index lost 0.8 percent. Canadian bonds rallied today, outpacing gains in Treasuries as traders pared bets that the Bank of Canada will boost its record low 0.25 percent target lending rate on June 1. Interest-rate swaps tied to short-term borrowing showed on May 5 a 68 percent chance of a rate increase, down from total certainty on April 20, according to the latest prices from Credit Suisse Group AG. Market ‘Gamble’ “The way to characterize it is that markets internationally are gambling that central banks will struggle to hike rates in the next few months,” said Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank’s TD Securities Inc. unit in Toronto. “You cherry-pick those countries that were seen as likely to hike in the next few months, and Canada is one of those. The U.S. is not.” The yield advantage of two-year Canadian bonds over U.S. debt narrowed 8 basis points, or 0.08 percentage point, to 104 basis points. The yield on Canada’s 1.5 percent note due in June 2012 fell as much as 15 basis points to the one-week low of 1.80 percent while comparable U.S. debt drew a 0.78 percent yield. The government’s 3.5 percent security due in June 2020 rose 0.72 cents to C$100.57, pushing the yield 9 basis points lower to 3.43 percent. The Canadian dollar advanced 0.2 percent to C$1.2760 against the euro, from C$1.2786 yesterday, when it appreciated to C$1.2732, the strongest level since July 2001, on demand for a refuge from Europe’s debt turmoil. Euro’s Plunge The euro fell below $1.24 today for the first time since November 2008 as Germany’s Chancellor Angela Merkel said Europe is in a “very, very serious situation” and El Pais reported without saying where it got the information that France threatened to leave the euro during talks that led to this week’s bailout of almost $1 trillion. The Madrid-based newspaper cited comments made by Spanish Prime Minister Jose Luis Rodriguez Zapatero at a May 12 meeting of Socialist politicians. A spokeswoman at French President Nicolas Sarkozy’s office in Paris declined to comment on the report. Spokesmen for Merkel and Zapatero had no immediate comment. The 14-day relative strength index of the euro against the Canadian dollar was below 30 for a third day, a sign the single currency’s drop may reverse. The loonie had a 1.1 percent gain versus the greenback this week, the first five-day increase since April 23. To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net.

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