CANADA FX DEBT-C$ firms on U.S. dollar selloff after brief dip on weak data

* Canadian dollar at C$1.2662 or 78.98 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, March 20 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Friday, as a
sell-off in the U.S. dollar outweighed weaker-than-forecast
domestic retail sales for January, which had initially dragged
on the currency.
    Retail sales fell for a second month, down 1.7 percent to
C$41.46 billion, as gasoline sales posted the biggest monthly
drop since November 2008 and consumers spent less on new cars.
Sales fell in 7 of 11 subsectors, representing 83 percent of
retail trade. 
    "The retail sales miss ... isn't surprising considering that
the Bank of Canada had provided guidance that Q1 data was going
to be weak," said Brad Schruder, director of foreign exchange at
BMO Capital Markets.
    Inflation data for February was unchanged from January,
holding at 1 percent as cheap gasoline prices continued to weigh
on the index.
    Schruder said the data likely gives the Bank of Canada
confidence about their projections, adding there was little
momentum to break out of existing trading ranges based on
Friday's numbers.
    The Canadian dollar was trading at C$1.2637 against
the U.S. dollar, or 79.13 U.S. cents at around 9:28 a.m. (1328
GMT), nearly a cent stronger than Thursday's Bank of Canada
close at C$1.2726, or 78.58 U.S. cents. 
    Shortly after the data, the loonie had touched C$1.2724, or
78.59 U.S. cents, the weakest level of the session.
    "The market is going back to watching what's happening in
euro/dollar and dollar/yen," said Schruder, adding the market
was "looking for directional cues there as to whether or not all
the froth that was in the buck ahead of the FOMC is indeed now
gone or if there is still a little bit more to come before U.S.
dollar appreciation across the board takes hold again." 
    Canadian government bond prices were higher across the
maturity curve, with the two-year adding 4 Canadian
cents to yield 0.454 percent and the benchmark 10-year
 rising 20 Canadian cents to yield 1.294 percent.

 (Additional reporting by Allison Martell; Editing by Bernadette