TORONTO (Reuters) - The Canadian dollar retreated against the U.S. currency on Thursday, touching its weakest level in nearly two weeks, after disappointing data from the United States, China and Europe underscored concerns about global economic growth.
The number of Americans filing new claims for jobless benefits held near two-month highs last week, suggesting some weakening in labor market conditions, while the manufacturing sector saw its weakest quarter in three years as foreign demand for U.S. goods continued to fade.
Overseas, the downturn in activity in the euro zone's service sector steepened this month at the fastest pace since July 2009.
"The weaker euro zone data has tempered risk appetite a little bit. As well, we saw weaker-than-expected U.S. jobless claims figures, which cast some doubt on the health of the U.S. recovery and the outlook for Canadian exports," said Sal Guatieri, senior economist at BMO Capital Markets.
Meanwhile, manufacturing in China contracted for an 11th month in a row in September, according to a private sector survey of factory managers.
Analysts said selling of the Canadian dollar by traders looking to lock in recent gains was also a moderate factor.
Canada's dollar finished its North American session at C$0.9765 to the U.S. dollar, or $1.0241, weaker than Wednesday's finish of C$0.9745, or $1.0262. Earlier, the currency touched a low of C$0.9817, its weakest level since September 7.
"Most people are still looking at C$0.9850, which seems to be a nice technical level to play off on the rallies for now," said Darcy Browne, managing director, capital markets trading at CIBC.
The currency had been trading in a narrow range this week as markets digested the implications of monetary policy changes in the United States, Europe and Japan aimed at stimulating growth.
"We're really just an observer here, trying to make sense of it all," said Browne.
Canada's dollar has been trading at stronger-than-expected levels, with some strategists attributing part of the currency's performance to the Bank of Canada's hawkish stance, which stands in marked contrast to other major central banks.
CIBC revised its official targets for the Canadian dollar on Thursday, forecasting the currency will touch C$0.96 in the fourth quarter before slipping back to parity with the U.S. dollar by the second quarter of 2013.
The bank had previously pegged the currency to weaken to C$1.02 in three months and trade around parity in six months, according to a Reuters poll published earlier this month.
Slower domestic growth, the likelihood international buying of Canadian securities will ease off and the risk a Chinese slowdown will hurt commodity prices could all contribute to Canadian dollar weakness, the bank said on Thursday.
Friday's inflation numbers are the only major piece of domestic economic data due out this week. The Bank of Canada's core annual inflation reading is expected to be 1.5 percent. The central bank targets an inflation rate of 2 percent target.
"That's comfortably below the Bank of Canada's overall inflation target ... It just simply buys the Bank of Canada time to remain on the sidelines as it assesses the uncertain global outlook," said BMO's Guatieri, who added the strong dollar was partly responsible for the low inflation rate.
Canadian government bond prices rose across the curve. The two-year bond climbed 2.5 Canadian cents to yield 1.146 percent, while the benchmark 10-year bond gained 25 Canadian cents, yielding 1.860 percent.
Editing by Jeffrey Hodgson