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TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday after a setback in talks to avoid a messy Greek default heightened pessimism about Europe's debt crisis, more than offsetting the impact of firm Canadian retail sales data.
Canadian retail sales grew more than expected in November for the fourth straight month, Statistics Canada said on Tuesday, supporting expectations that consumer spending will continue to power economic growth.
"The market was probably looking for an even better (retail sales) number," said Steve Butler, a director of foreign exchange trading at Scotia Capital. "The (U.S.) dollar is getting a boost seeing a risk aversion from a lot of headlines out of Europe."
The euro and commodity-linked currencies like the Canadian dollar fell after euro zone finance ministers rejected an offer by Greek private creditors to write down the nominal value of their debt by 50 percent in return for new longer-term bonds paying an interest rate of 4 percent.
The Canadian currency, which briefly pared losses after the retail data, softened to a session low C$1.0142 to the U.S. dollar, or 98.61 U.S. cents. It closed on Monday at C$1.0074 to the U.S. dollar, or 99.27 U.S. cents.
On Monday, Canada's dollar made a move towards parity with the U.S. dollar, climbing to a near seven-week high at C$1.0052, before retreating.
Butler said the Canadian dollar should find support at around the C$1.0160 area.
Currency traders were looking ahead to the start of a two-day meeting by the U.S. Federal Reserve on Tuesday where it will initiate a new practice of announcing the U.S. central bank's interest rate projections in a move it hopes will bring greater public clarity to its decision-making.
"Unless we're going to get some new news about rate policy it might just be a little bit more about how the new format works rather than a big market mover," said Butler.
Canadian government bond prices were mostly lower, with the two-year bond unchanged at a yield of 1.058 percent. The 10-year bond fell 10 Canadian cents to yield 2.099 percent.
Editing by Jeffrey Hodgson