CANADA FX DEBT-C$ stronger, but concerns on economy, Europe linger

* C$ at C$1.0243 vs US$, or 97.63 U.S. cents
    * Retail sales rise by 1 pct but volumes flat
    * Federal budget has little effect on currency
    * C$ touches weakest level against AUD in more than a year
    * Bond prices rise across curve

    By Alastair Sharp
    TORONTO, March 21 (Reuters) - The Canadian dollar firmed
against its U.S. counterpart on Thursday, helped by a
surprisingly strong reading of economic growth out of New
Zealand, while Canadian retail sales and worries about Cyprus
tempered gains.
    Retail sales were weaker than the initial headline
indicated, analysts said, noting that the 1 percent rise in
sales in January followed a revised 2.3 percent drop in
December. In volume terms, used for calculating real GDP growth,
sales were flat. 
    "The anticipation that it would be a big rebound was offset
to some degree by the revision that was lower for December,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
    The loonie, as Canada's currency is colloquially known,
brushed off the afternoon release of the federal budget, which
kept a promise to erase the deficit before a 2015 election even
as it found new cash for infrastructure and manufacturers.
    "What we've seen so far is as expected, no great surprises
in terms of the fiscal numbers...even the downgraded (economic)
numbers are no big surprise," Shaun Osborne, chief currency
strategist at TD Securities, said.
    "I can't imagine that (Finance Minister) Jim Flaherty, for
all his eloquence, is going to take the market's attention away
from Cyprus at the moment," he added.
    The currency ended the session at C$1.0243 versus the U.S.
dollar, or 97.63 U.S. cents, slightly stronger than its North
American session close on Wednesday of C$1.0254, or 97.52 U.S.
    Worries about how Cyprus's banking crisis may affect other
indebted euro zone countries unnerved investors. The European
Union gave Cyprus until Monday to raise the billions of euros it
needs to secure an international bailout or face a collapse of
its financial system that could push it out of the euro zone
currency bloc. 
    "A move out of the euro zone by Cyprus is likely to filter
into the market psyche, from a risk perspective, and that likely
is going to equate to some weakness in the Canadian dollar,"
National's Spitz said, though he said that the link between risk
appetite and the Canadian dollar has eroded somewhat.
    The currency's commodities cousins, the Australian and New
Zealand dollars, were both stronger overnight, with Australia
also firmer on a surprisingly upbeat report on manufacturing in
China, Australia's biggest export market.  
    "Risk held up okay overnight," said Mark Chandler, head of
Canadian fixed income and currency strategy at Royal Bank of
Canada, citing the benefit from New Zealand's GDP.
     "The kiwi dollar was the strongest performer overnight. It
seems to be helping most of the commodities-based currencies as
well and Canada's coming along for the ride," he said. "Our own
data really, even though it looks good on the surface, the guts
to the report aren't that encouraging."
    Canada's performance was mixed against other major
currencies. It was stronger against the euro, but
weaker versus the Japanese yen. It touched its weakest
level against the Australian dollar in more than a
    In other data, the number of Americans filing new claims for
jobless benefits edged higher last week, but a trend reading
dropped to its lowest in five years and pointed to ongoing
healing in the labor market. 
    Canada's dollar is likely to trade between C$1.0180 and
C$1.03 in coming days, Spitz said.
    Canadian government bond prices were higher across the
curve, with the two-year bond up 1 Canadian cent to
yield 0.985 percent, while the benchmark 10-year bond
 climbed 39 Canadian cents to yield 1.820 percent.