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TORONTO, Feb 23 (Reuters) - The Canadian dollar rose versus the U.S. dollar on Monday in volatile dealings as risk appetite returned but pared gains as domestic retail sales slumped more than expected.
With expectations that the U.S. government will take a large stake in financial giant Citigroup, instead of nationalizing it, stock market around the world rose and the U.S. dollar hit its highest versus the yen in nearly three months.
The Canadian dollar's movements have recently been tied to the direction of the equity market.
"It has been a little choppy. It's been all over the place overnight and so it's almost a little bit deceptive just to note that you've got a modest appreciation on the day," said Eric Lascelles, TD Securities chief economics and rates strategist.
At 9:27 a.m. (1427 GMT), the Canadian dollar was at C$1.2475 to the U.S. dollar, or 80.16 U.S. cents, up from Friday's Bank of Canada closing level at C$1.2493 to the U.S. dollar, or 80.04 U.S. cents.
At its highest point in the overnight session, the Canadian dollar hit C$1.2350 to the U.S. dollar, or 80.97 U.S. cents.
The currency began to head lower ahead of numbers that showed Canadian retail sales tumbled 5.4 percent in December, the biggest monthly drop since at least 1991 and more than twice the amount expected. [ID:nN23330217]
The Canadian dollar briefly fell below 80 U.S. cents after the retail sales data but quickly recovered above it.
Canadian bond prices were mostly lower across the curve, weighed by rising stocks as anxiety eased following a report that the U.S. government may convert its existing preferred shares of Citigroup into common stock.
The two-year bond fell 1 Canadian cent at C$102.65 to yield 1.227 percent, while the 10-year bond lost 20 Canadian cents to C$110.95 to yield 2.894 percent.
The 30-year bond dropped 50 Canadian cents to C$124.30 to yield 3.619 percent. (Reporting by Ka Yan Ng; Editing by Tom Hals)