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* C$ falls to C$1.0035 vs US$, or 99.65 U.S. cents
* Bond prices edge higher
By Claire Sibonney
TORONTO, Feb 16 (Reuters) - The Canadian dollar retreated to its lowest in more than two weeks against the greenback on Thursday, back below parity as a delay in deciding on a crucial bailout for Greece unnerved investors and halted the rally for riskier assets.
Also weighing on global markets, Moody's warned on Thursday it might cut the credit ratings of 17 global and 114 European financial institutions, in another sign the impact of the euro zone debt crisis is spreading.
"It's generally a risk-off kind of environment, so we should expect the (U.S.) dollar to do a bit better here. I think the market is still pretty much attached to this sort of risk-on, risk-off relationship we're seeing at the moment," said Shaun Osborne, chief currency strategist at TD Securities.
"The weakness in stocks overnight, particularly late yesterday in the U.S., does suggest that the risk rally that we've seen over the past few weeks is at least going to stall out here, may even correct a little lower given the price action that we've seen in euro/dollar at the moment and the ongoing focus on Greece."
Greece is now facing a very tight timetable to avoid a potentially chaotic default, having said it must initiate a debt swap with its private bondholders by Friday to meet a March 20 deadline when it is due to repay 14.5 billion euros in debt.
Even if a deal is agreed on Monday, several sources have told Reuters euro zone finance officials are examining ways of delaying part or possibly all of the second bailout programme, while still avoiding a disorderly default.
On the bright side on Thursday, Spain and France found solid demand for debt at auctions while Australia reported robust jobs numbers.
At 7:56 a.m. (12:56 GMT) The Canadian dollar stood at C$1.0035 versus the U.S. dollar, or 99.65 U.S. cents, weaker than Wednesday's North American session close at C$0.9991 versus the U.S. dollar, or $1.0009. Earlier, it fell as low as C$1.0052, or 99.48 U.S. cents, its worst level since Jan. 31.
Osborne said near-term support for the Canadian dollar lies around C$1.0050-75. Despite the domestic currency holding up better on the crosses, the bias for U.S. dollar strength could then see the Canadian dollar approach C$1.0150-C$1.02 if the softening trend persists.
Canadian bond prices advanced alongside U.S. Treasuries, as the risk-off bid buoyed demand for safe-haven government bonds.
Canada's two-year bond rose 2 Canadian cents to yield 1.047 percent. The 10-year bond gained 13 Canadian cents to yield 2.000 percent.