* C$ at C$1.0211 vs US$, or 97.93 U.S. cents * Canadian factory sales rise 2.6 percent in Feb * U.S. new home starts up 7 percent in March * Bond yields rise across curve By Solarina Ho TORONTO, April 16 (Reuters) - The Canadian dollar was firmer against the U.S. dollar on Tuesday, recovering after its biggest one-day retreat in more than 16 months in the previous session, buoyed by stronger-than-expected U.S. and Canadian economic data. Canadian factory sales rose 2.6 percent in February from January, the largest gain since July 2011, helped by higher sales of transportation equipment, energy products and food. Meanwhile, U.S. housing data offered more evidence of a healthier market, as groundbreaking to build U.S. homes rose 7 percent last month to a 1.04 million-unit annual rate, its highest level since 2008. "The Canadian numbers are quiet positive ... it looks like Canada's economy will pick up in the first quarter after sub-1 percent growth in the second half of last year, so that's encouraging," said Sal Guatieri, senior economist at BMO Capital Markets. He also said the U.S. housing data showed a recovery that was in full swing, though a drop in permits signaled a more subdued pace of home building over the next couple of months. "Suffice to say the U.S. housing market trend is clearly upwards and that's great for Canada's forest and lumber industry. So, overall, the two reports are positive for the Canadian dollar," said Guatieri. At 9:01 a.m. (1401 GMT), the Canadian dollar was trading at C$1.0211 against the U.S. dollar, or 97.93 U.S. cents, stronger than Monday's North American finish at C$1.0254, or 97.52 U.S. cents. It touched its strongest level of the session versus the greenback shortly after the data was released, hitting C$1.0205, or $97.91 U.S. cents. The currency had weakened more than a cent on Monday, its biggest one-day loss against the U.S. dollar since December 2011, pressured by plunging commodity prices. U.S. data on Tuesday also showed tame inflation, which Guatieri said supports the Fed's current quantitative easing policy. Separately, Canadian government data showed foreign investors cut their holdings of Canadian securities by C$6.3 billion ($6.2 billion) in February, attributed primarily to merger and acquisition activity. The loonie, as it is colloquially known, was stronger versus the Japanese yen and British sterling, but was weaker against its commodities-linked sister currencies, the Australian and the New Zealand dollars. It was also trading at its weakest level against the euro in more than five weeks. The currency was expected to trade between the 50-day moving average of C$1.0179 and C$1.0258 on Tuesday, according to a Scotiabank note. The price of Canadian government debt was lower across the curve, with the two-year bond shedding 1.5 Canadian cents to yield 0.943 percent and the benchmark 10-year bond falling 33 Canadian cents to yield 1.747 percent.