The Canadian dollar plunged to a new low Thursday, diving below 62 cents (U.S.) for the first time since it came into circulation in 1858, and economists believe it won't stop there.

Bouts of speculative selling early in the European trading day wiped more than half a cent from the dollar's value, driving it to a historic low of 61.84 cents. It later recovered slightly to end trading at 62.13 cents, down 0.40 cents from Wednesday.

"I should be coming up there on vacation with this low dollar," Mike Malpede, currency analyst with Refco Inc. in Chicago, said.

Even though it changed hands above 62 cents in North American trading, sentiment remained skittish, an analyst said.

"I still think there's more to go," said Jeff Rubin, chief economist at CIBC World Markets. "Over the next three or four months, the Canadian economy will shed 50,000 jobs...and the unemployment rate will hit 8.5 per cent."

Last month the unemployment rate hit 8 per cent, the highest in almost three years. Some economists had expected the Bank of Canada to drop rates aggressively half a percentage point on Tuesday because of the job losses. The bank dropped them only a quarter of a point, taking its key overnight rate to a 41-year low of 2 per cent.

"The Bank of Canada has more work to do," Mr. Rubin added. He predicted it will be forced to cut interest rates half a percentage point in March. Without a strong fiscal stimulus package to get the economy back on track, "the Bank of Canada will have to do all the heavy lifting on its own."

Before the economy turns the corner the dollar will continue to fall, and could reach 60.80 cents, or $1.6450 (Canadian), Mr. Rubin said, the level he forecast a year ago.

Finance Minister Paul Martin said the currency will recover as the North American economy begins to turn the corner.

"I certainly believe that, once we have stability, the underlying fundamentals of the Canadian economy will be reflected in our currency," Mr. Martin said in Winnipeg.

"The principal source of the problem lies in the international instability and the current recession in the United States, which is affecting not just Canada but all countries, and therefore it is also reflecting most other countries' currencies."

The loonie has been weak for the past year, falling from 67 cents (U.S.) at the beginning of 2001. It dropped 2.7 per cent in January of last year alone.

Scott Brison, finance critic for the Progressive Conservative-Democratic Representative coalition, blamed the sinking dollar on what he called the Liberal government's failure to address Canada's flagging productivity rates.

"Since the Liberals have taken office, the Canadian dollar has lost 18 per cent against the U.S. dollar," Mr. Brison said.

"This represents a drop in the standard of living, and in effect a pay cut, for every Canadian," he said.

The previous low occurred on Dec. 24, when the dollar changed hands at 62.29 cents, although it rose by one-third of a cent by the end of trading that day. On Nov. 9 it dipped to 62.37 cents.

Until then the historic low was 63.10 cents in August of 1998.

The continuing slide makes travel to the United States more costly for Canadians and pushes up the cost of imported goods, such as fresh fruit and vegetables.

Consumers are in a precarious situation after fuelling economic growth last year, said Derek Burleton, economist at Toronto-Dominion Bank, who is encouraged by a rebound in consumer spending, especially on big-ticket items.

"Consumer confidence has rebounded from the low in September after the terrorist attacks, but consumers remain highly indebted and vulnerable to shifts in the job market."

More job losses are expected in the months ahead, he added.

"It looks like a more tepid recovery [than had been expected], so we can't expect a strong bounce-back in growth or big ramp-up in earnings," said Alister Smith, deputy chief economist at Canadian Imperial Bank of Commerce.

"There are no obvious signs of hope, so the dollar could dig deeper," Mr. Smith said. He did not predict how much further it would fall but said it would rebound later in the year.

Market-watchers said Thursday's decline was a technical move after the currency fell below previous historic lows, rather than the result of economic news.

"The Bank of Canada's policy statement [Tuesday] may have signalled an end to the easing program prematurely," said Rob Palombi, senior analyst at Standard & Poor's MMS. "Without more rate cuts the recovery in Canada may lag the U.S., so the dollar will weaken further."

Seasonal flows of capital out of Canada contributed to the recent weakness, analysts said.

Because the ceiling on foreign assets held in Canadian pension funds has risen to 30 per cent from 20 per cent a year ago, there is more selling pressure on the dollar as investors buy foreign stocks and bonds, Mr. Malpede said. As well, Japanese investors are starting to repatriate offshore assets ahead of Japan's March 31 fiscal year end, which is helping to weaken the Canadian currency in thin market conditions, he said.

He said the loonie could hit 60 cents over the next two months if the Canadian recovery lags behind the upturn in the U.S.

However, "I think for the Canadian economy, which is very export-oriented, a weak Canadian dollar still works to your advantage," Mr. Malpede said.

The Canadian Alliance called on the Liberal government to abandon its low-dollar policy, saying the loonie's slump is proof of international apprehension about Canada's economic health.

Finance critic Jason Kenney said it's paving the way for a selloff of Canadian companies.

"Fundamentally, selling things to other people by devaluing our currency makes us poor as a nation and it also reduces, in a sense, the cost of Canadian corporate assets, making Canada a fire sale for American corporate takeovers."

With reports from Steven Chase in Ottawa and Reuters