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* Canadian dollar falls 0.7% against the greenback
* Canadian dollar suffers its biggest drop since March
* U.S. oil prices decrease by 3.3%
* Canada's curve inverts by the most in two decades
By Levent Uslu
TORONTO, Aug 14 (Reuters) - The Canadian dollar weakened by the most in more than five months against its U.S. counterpart on Wednesday as oil prices dropped and investors worried about the global growth outlook.
At 2:35 p.m. EDT (1835 GMT), the Canadian dollar CAD=D4 was trading 0.7% lower at 1.3320 to the greenback, or 75.08 U.S. cents, the biggest daily loss since March 1.
The loonie touched its weakest intraday level since last Wednesday, at 1.3326.
"The fears of a recession in Europe and a deeper slowdown in China along with the rest of the world are hurting all growth-sensitive assets including the Canadian dollar," said Adam Button, chief currency analyst at Forexlive. "On top of that, oil data over the past few days was a bit bearish."
Canada exports many commodities, including oil, making it vulnerable to a slowdown in the global economy.
Oil prices fell on weak economic data from China and Europe and a rise in U.S. crude inventories. U.S. crude CLc1 prices settled 3.3% lower at $55.23 a barrel. reported weaker-than-expected economic data for July, including a surprise drop in industrial output growth to a more than 17-year low, while a slump in exports sent Germany's economy into reverse in the second quarter. government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 6 Canadian cents to yield 1.352% and the 10-year CA10YT=RR was up 88 Canadian cents to yield 1.152%.
The 10-year yield fell 6 basis points further below the 2-year yield to a spread of -20 basis points, the curve's largest inversion since May 1999. An inverted curve is seen by some investors as a harbinger of recession.