* C$ closed at C$0.9892, or $1.0109
* Retreats from 2 1/2 year high reached on Wednesday
* Bond prices mixed
TORONTO, Jan 13 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday, retreating further from a 2-1/2 year high reached on Wednesday, hurt by commodity and equity market weakness and a rally in the euro.
North American stock markets and commodity prices struggled following weak U.S. jobless claims data with oil, copper and gold all declining. [O/R] [MET/L] [GOL/]
Canada is a major producer of natural resources and its currency often moves in tandem with commodity prices.
But analysts said the currency was also hit by the euro's surge against the U.S. dollar. The euro posted its biggest gains in more than half a year after solid European debt auctions and a warning of short-term inflation risks from the European Central Bank. [FRX/]
"There's a fair number of moving parts in the currency market that are surrounding Canada, most notably coming from the euro zone," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"The currencies that are typically most closely associated with high risk -- being the Aussie or the Canadian dollar -- have been sold against the euro, in somewhat of an unwind of the short euro positions that were held against those two currencies."
The Canadian dollarclosed at C$0.9892 to the U.S. dollar, or $1.0109, down from Wednesday's North American finish of C$0.9869 to the U.S. dollar, or $1.0133.
Analysts were next looking for direction from U.S. retail sales data and Thomson Reuters/University of Michigan's reading on January consumer sentiment coming out on Friday.
Darren Richardson, a corporate dealer at CanadianForex, said negative U.S. news could "spell some intraday selling of the Canadian dollar as people move away from high risk assets and commodity currencies."
Richardson expects the currency trade within a range of C$0.9850 and C$0.9950.
EYE TO BANK OF CANADA DECISION
Analysts are also awaiting Bank of Canada's interest rate decision next week, with particular focus on the tone of central bank chief Mark Carney.
With the Canadian dollar near a 2 1/2-year high, many expect the central bank to maintain a dovish tone out of fear increasing rate expectations would spur further currency gains.
A stronger currency can act as a brake on growth in an export-oriented country such as Canada and pressure an already fragile economic recovery.
A Reuters poll of 45 forecasters unanimously predicted the Bank of Canada will keep interest rates unchanged when it announces its decision Jan. 18. More than half the respondents said the next rate hike would occur sometime in the first half of 2011. [ID:nN1340408]
Canadian government bond prices were mixed on Thursday.
The interest-rate sensitive two-year bondwas down 4 Canadian cent to yield 1.773 percent, while the 10-year bond gained 7 Canadian cents to yield 3.250 percent. (Editing by Jeffrey Hodgson)
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