CANADA FX DEBT-C$ selling resumes, focus turns to inflation data

* Canadian dollar at C$1.1099 or 90.10 U.S. cents
    * Bond prices mixed across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 20 (Reuters) - The Canadian dollar weakened to
its lowest level against the greenback in two weeks on Thursday
as investors resumed selling the loonie after a recent respite,
while market focus turned to the Canadian January inflation
report due on Friday.
    The currency was also pressured by downbeat data from China
that showed continued contraction in manufacturing activity in
the world's second-largest economy. 
    The pace of business activity in the euro zone also cooled
slightly in February. 
    The decline in the loonie extended Wednesday's more than 1
percent drop. Until then the currency had been trending higher
this month after hitting a 4-1/2 year low at the end of January.
    "It really was a temporary reprieve," said Don Mikolich,
executive director of foreign exchange sales at CIBC World
Markets in Toronto.
    A shift toward a more dovish stance by the Bank of Canada
last year has hit the loonie hard in recent months and analysts
have been predicting that with fundamentals unchanged, the
currency was likely resume its downward path after its February
    The central bank has expressed concern about weak inflation
in Canada and is seen keeping interest rates low for some time.
    "Until that changes, it's hard to see where the market would
really get more positive on the Canadian dollar," Mikolich said.
    The Canadian dollar ended the North American
session at C$1.1099 to the greenback, or 90.10 U.S. cents,
weaker than Wednesday's close of C$1.1082, or 90.24 U.S. cents.
It was the first time in February that the Canadian dollar has
been lower for two sessions in a row.
    In the short term, as long as the C$1.1030 level remains
intact for the U.S. dollar-Canadian dollar pairing, a return to
recent greenback strength above C$1.12 can be seen, said Gareth
Sylvester, director at Klarity FX in San Francisco.
    Failure to hold C$1.1030 could see the currency pair move
back toward previous support levels around the C$1.0920 and
C$1.0930 area, he said.
    "The general consensus in the community is that certainly
the C$1.15 area is a firm price target, so we'll watch that
level very keenly," Sylvester said.
    Investors were turning their attention to Friday's inflation
report, which will be parsed for what impact it could have on
monetary policy. The Bank of Canada's next policy announcement
is in March.
    The annual inflation rate is seen picking up modestly to 1.3
percent in January from the previous month. Retail sales for
December will be released at the same time, with economists
forecasting a decline of 0.4 percent. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year unchanged to yield
1.002 percent, while the benchmark 10-year added 4
Canadian cents to yield 2.437 percent.