* Unexpected rise in retail sales helps C$ rally
* C$ up 4.3 percent this week after back-to-back gains
* Bond prices rally alongside U.S. market
By Frank Pingue
TORONTO, Nov 25 (Reuters) - The Canadian dollar closed at its highest level in a week on Tuesday as new U.S. measures to boost consumer spending eased concerns about the economic crisis and dulled the greenback's safe-haven status.
Domestic bond prices rebounded from losses in the previous session and closed higher across the curve, given some weak U.S. economic data and market views that the recent stock market rally may have lost steam.
The Canadian dollar closed at C$1.2250 to the U.S. dollar, or 81.63 U.S. cents, up from C$1.2345 to the U.S. dollar, or 81.00 U.S. cents, at Monday's close.
The currency is up 4.3 percent this week after two weeks of declines in which it shed a total of 7 percent. During Tuesday's North American session it rose to C$1.2126 to the U.S. dollar, its highest level since Nov. 17.
After faltering in recent weeks on nagging fears of a global recession and wilting demand for Canadian commodities and manufactured goods, the currency received a sudden boost from the U.S. central bank.
The Federal Reserve unveiled two programs aimed at making it easier for U.S. consumers to get loans for homes, cars and on credit cards, which helped reduce the extreme risk aversion that had been supporting the U.S. dollar.
"They're doing everything they can to get ahead of this and dampen down the fear that has been gripping markets for the longest period of time," said David Watt, senior currency strategist at RBC Capital Markets.
Early in the session the Canadian dollar attracted a wave of buying interest after economic data showed retail sales were unexpectedly strong in September and more than offset a decline in sales in August.
But the gains eventually unwound as the retail sector's strength was not expected to carry over into October when when global financial markets plummeted.
Bond prices finished comfortably higher across the curve along with the bigger U.S. Treasury market after economic data showed the U.S. economy contracted in the third quarter more than previously estimated and reinforced a growing market impression that a U.S. recession is under way.
Also lending support to bond prices, as has been the case for several weeks, were nagging fears about the unfolding credit crisis and the slowdown in the global economy.
Those concerns managed to keep North American stock markets from adding significantly to the gains recorded on Monday as investors still had an appetite for secure government debt.
The Canadian overnight Libor rate LIBOR01 was 2.2583 percent, up from 2.3166 percent on Monday.
Monday's CORRA rate CORRA= was 2.2472 percent, up from 2.2430 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 10 Canadian cents to C$101.93 to yield 1.775 percent. The 10-year bond ended up 97 Canadian cents at C$106.97 to yield 3.386 percent.
The yield spread between the two-year and 10-year bond was 171 basis points, up from 166 at the previous close.
The 30-year bond jumped C$1.80 to C$117.40 to yield 3.974 percent. In the United States, the 30-year treasury yielded 3.616 percent.