* C$ eases to $1.0268 as crude retreats on Gaddafi rumors
* Stock markets slide on worries over global economy
* Bond prices higher as equities fall
* Canada January building permits fall unexpectedly (Adds details)
TORONTO, March 7 (Reuters) - Canada's dollar CAD=D4 slipped against the greenback on Monday as the price of oil retreated on speculation Libyan leader Muammar Gaddafi was looking to negotiate a safe exit from the country.
U.S. crude futures CLc1, an influential factor for the commodity-linked Canadian dollar, erased some gains, after reaching their highest level since September 2008, on rumors that Gaddafi was seeking an exit deal with rebels. [ID:nL3E7E700D]
Libya's violent conflict and the threat of wider supply disruptions in the Middle East have spurred oil's recent rise to over $100 a barrel. [O/R]
Worries about the stifling effect of higher oil prices on the global economy rattled stock markets, pulling down North American indexes more than 1 percent on Monday.
"Stocks have traded off quite aggressively and oil is down (from highs)," said Brendan McGrath, senior foreign exchange trader at Western Union Business Solutions, in Victoria, British Columbia.
At 12:55 p.m. (1755 GMT), the currency was at C$0.9739 to the U.S. dollar, or $1.0268, down from Friday's North American session close at C$0.9717 to the U.S. dollar, or $1.0291.
The currency hit a session high of C$0.97 to the U.S. dollar, or $1.0309, but pulled back slightly after a report showed the overall value of Canadian building permits unexpectedly dropped by 5.1 percent in January from December. [ID:nN0730031]. But that move was short-lived.
"The market looks like they're just letting this one slide for the time being," said John Curran, senior vice-president at CanadianForex.
For now, he said key levels included C$0.9680-C$0.9710, initial U.S. dollar support, while C$0.9780 marks the first U.S. dollar resistance point.
The session low was at C$0.9743, making for a 43-point range so far on Monday.
Canadian government bonds were flat to higher across the curve with equities on the decline. The two-year bond CA2YT=RR was unchanged to yield of 1.843 percent, while the 10-year bond CA10YT=RR edged up 2 Canadian cents to yield 3.332 percent.
HOUSING, JOBS DATA AHEAD
Several more pieces of data this week will help determine the strength of the domestic economic recovery and market pricing on the Bank of Canada's next interest rate hike.
"We're waiting for some sort of catalyst to kick us out of this current range that we're in (where) C$0.97 is looking to be pretty good (U.S. dollar) support. It's going to be data-driven." said McGrath.
Housing starts, due on Tuesday, could show whether the sector continues to be a drag on overall growth after being a main factor pulling the economy from recession.
Trade data for January on Thursday, as well as the February reading on the jobs market on Friday, will be the main attractions this week as market players look to see whether both pieces of data can repeat the unexpected strength from their previous months.
Canada's surprise return to a trade surplus in December prompted hopes of an export recovery as well and put the prospect of a Bank of Canada interest rate hike back on the radar.
A modest pace of job creation would also support momentum in the economic recovery.
But if any of the data is weaker, the Canadian dollar may follow suit and weigh on anticipation of an interest rate hike before midyear, analysts said.
The central bank has stayed on the sidelines since September after three consecutive rate increases last year brought its benchmark rate to a still-low 1 percent.
Overnight index swaps, which trade based on expectations for the key central bank rate, imply a fully priced-in rate increase on the bank's Sept. 7 decision date. BOCWATCH (Reporting by Ka Yan Ng; editing by Rob Wilson)
