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* Currency at C$0.9785 vs the U.S. dollar, or $1.0220
* Bond prices fall as geopolitical worries ease (Updates with details)
By Solarina Ho
TORONTO, March 22 (Reuters) - Supported by steady commodity prices, the Canadian dollar was higher against its U.S. counterpart on Tuesday morning, but off its highs as Canadian retail sales data for January came in lower than expected.
Retail sales fell by 0.3 percent in January from December, dragged lower by weaker new-car sales, Statistics Canada said. [ID:nN22154488]
Other data showed Canada's leading indicator for February was up 0.8 percent from January on strength in the manufacturing sector but that was insufficient to offset the impact of the retail figures.
January was the second straight monthly decline in retail sales and contrasted to the 1.0 percent rise that had been forecast. The data signaled that the Canadian economy has not fully recovered from the global financial crisis and could help refine expectations on when the Bank of Canada might raise interest rates.
Primary-dealer forecasts for a rate increase were largely split between its May 31 and July 19 policy announcement dates, according to a Reuters poll last week. [ID:nN18126761]
The currency CAD=D4 fell to C$0.9785 to the U.S. dollar, or $1.0220, from C$0.9756, or $1.0250, just before the data was released at 8:30 a.m. (1230 GMT).
The currency was still up from its Monday close of C$0.9797, or $1.0207, as commodity prices held steady and overseas stock markets firmed.
"Equity valuation ... that's contributing to stable pricing in crude and gold, more of an appetite for risk-related carry trades and the Canadian dollar is benefiting from that flow," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
Canada's minority Conservative government will release the budget after markets close on Tuesday, which could introduce some political risk for the currency.
If the opposition rejects the budget, an election would be called, though Conservatives were seen as making a number of 11th-hour concessions in a bid to avert such a scenario. [ID:nN218894]
Canadian bond prices fell across the curve, in step with U.S. Treasuries, which slipped as investors pushed world stock markets higher and brushed aside worries over Libya and Japan in the absence of new geopolitical developments. [US/]
The interest rate-sensitive two-year bond CA2YT=RR was down 5.5 Canadian cents to yield 1.712 percent, while the 10-year bond CA10YT=RR fell 23 Canadian cents to yield 3.246 percent. (Editing by Peter Galloway)