TORONTO - The Canadian dollar fell almost one US cent Monday morning as investors bought up U.S. Treasurys and sold off stocks.

Gold also moved further into record territory above the US$1,700 level after ratings agency Standard and Poor's downgraded U.S. government debt and the European Central Bank announced plans to buy up Italian and Spanish bonds to help the two countries avoid devastating defaults.

The loonie lost 0.84 of a cent to 101.4 cents US, further dragged down by falling commodity prices as investors nervous about a slowing U.S. economy unloaded oil and metals.

S&P delivered its verdict after the markets closed Friday, citing the damage done to the U.S. reputation over the controversy surrounding the debt ceiling and concerns that underlying public finances are on an unsustainable path.

"The U.S. has a fiscal crisis on its hands that could morph into a debt crisis and a political system that appears wildly under-equipped to deal with the problems it faces," said Scotia Capital chief currency strategist Camilla Sutton.

"In addition, the perception in markets is increasingly that central banks do not have the tools to solve the problems the advanced economies face and that the response to date might have caused more harm than good."

The borrowing costs of both Spain and Italy dropped sharply Monday after the European Central Bank signalled it would intervene in the markets to keep the two countries' bond prices supported.

The yield on Italy's 10-year bonds was down 0.44 percentage points to 5.56 per cent while the equivalent rate on Spain's tumbled 0.66 percentage point to 5.38 per cent.

Growing concerns about the two countries' high government debt levels and lacklustre economic growth pushed their borrowing costs to above six per cent last week -- rates that are deemed unsustainable in the long-term for the eurozone's third and fourth largest economies.

Demand worries continued to push oil and metal prices lower.

The September crude contract on the New York Mercantile Exchange retreated $4.06 to US$82.82 a barrel after falling about US$8 last week.

September copper lost three cents to US$4.09 a pound.

But investors looking for safety sent bullion prices surging with the December contract up $56.10 to US$1,707.90 an ounce.