* C$ falls to C$0.9663 to the U.S. dollar, or $1.0349
* Bond prices rise as risk sentiment modestly higher (Updates after U.S. inflation data, market open)
By Claire Sibonney
TORONTO, May 13 (Reuters) - Canada's dollar weakened against the greenback on Friday morning after oil's retreat from earlier highs sparked wariness about the direction of commodities and as U.S. April inflation data undermined confidence in the strength of the economic recovery.
U.S. consumer prices rose 0.4 percent in April, as expected, but the increase came on higher food and energy prices, a trend that was seen as discouraging economic growth. [ID:nN13186747]
"Investors realize that if commodity-driven inflation continues to increase it will have a meaningful negative impact on the U.S. economy," said Sal Guatieri, senior economist at BMO Capital Markets.
U.S. crude oil futures advanced above $100 a barrel in initial reaction to the U.S. data, but they subsequently pared gains.
Energy markets have been on a roller-coaster ride over the last week as investors have reassessed the outlook for global growth and the risk of supply disruptions in the Middle East. [O/R]
U.S. stock indexes also fell into the red after opening higher, a move mirrored by the Canadian dollar after the release of the U.S. data. [.N
At 9:50 a.m. (1350 GMT), the Canadian dollar CAD=D4 was at C$0.9663 to the U.S. dollar, or $1.0349, down from Thursday's North American session close at C$0.9623 to the U.S. dollar, or $1.0395.
The currency, which was hovering near 3-1/2-year highs against the greenback last week, has been caught up in the recent commodity rout. The Canadian dollar often tracks commodity prices, and typically is closely correlated with U.S. oil CLc1 because Canada is the major exporter of oil and gas to the United States.
It has traded in a wide range this week, sliding as low as C$0.9695 to the U.S. dollar on a steep slide in oil and silver prices early in the week. It rose as high as C$0.9513 to the U.S. dollar on a commodity price rebound.
"It really is just investors looking for a place to hide right now after a pretty brutal week," David Tulk, chief Canada macro strategist at TD Securities, said of Friday morning's action.
"You're seeing a little bit of a rebound in commodities but it's been such a bumpy ride recently that you're just reaching for the weekend after a very volatile and traumatic week."
Canadian bond prices were modestly higher, tracking the rise in safe-haven U.S. Treasuries after the inflation data. [US/]
Canada's two-year bond CA2YT=RR was up 5 Canadian cents to yield 1.705 percent, while the 10-year bond CA10YT=RR gained 23 Canadian cents to yield 3.209 percent. The 30-year bond CA30YT=RR advanced 52 Canadian cents to yield 3.599 percent. (Reporting by Ka Yan Ng and Claire Sibonney; editing by Peter Galloway)