TORONTO (Reuters) - The Canadian dollar closed lower against the US currency yesterday as concerns that tough credit conditions could crimp global economic growth spoiled investor appetite for risk.

Bond prices took advantage of their safe-haven status, rising amid sharp declines in North American stock markets and concerns over market turmoil.

The currency closed at C$1.0651 to the US dollar, or 93.89 US cents, down from C$1.0543 to the US dollar, or 94.85 US cents, at Monday's close.

During the overnight session the currency fell to C$1.0601 to the US dollar, or 94.33 US cents, but its ability to avoid falling through a key level triggered buying interest that ultimately boosted it to a session high of C$1.0542, or 94.86 US cents.

But a sharp decline in equity markets on both sides of the border, due mainly to nagging fears that credit turmoil could interfere with global growth, spoiled any chance for the currency to finish higher.

"We saw a clear turnaround in market sentiment," said Matthew Strauss, senior currency strategist at RBC Capital Markets.

"The longer the credit concerns continue the greater the risk that it might ultimately spill over into the real economy and depress commodity prices from a fundamental perspective and not just a speculative perspective."

The Canadian dollar's tumble overnight followed a speech late on Monday by Bank of Canada Deputy Governor Pierre Duguay, who all but reaffirmed market expectations for the central bank to stay on the sidelines when it sets policy on September 5.

Duguay said risks to the domestic economy have increased as a result of the credit market turmoil and that the central bank will assess the extent to which risks have shifted since its July talk of a modest further increase to the overnight rate.

Canadian bond prices extended recent gains as they took advantage of jitters that rattled equity markets and triggered a rush into much safer government debt.

The next Canadian data due out is the current account surplus, producer prices and raw materials reports on Thursday. But all are expected to have little impact ahead of the more influential second-quarter gross domestic product report due on Friday.

The two-year bond rose 13 Canadian cents to C$99.38 to yield 4.116 percent, while the 10-year bond was up 24 Canadian cents at C$97.64 to yield 4.297 percent.

The yield spread between the two-year and 10-year bond moved to 18.1 basis points from 12.6 at the previous close.