* C$ at C$0.9662 to the U.S. dollar, or $1.0350
* Canadian manufacturing sales fall in February
* Euro debt zone worries resurface
By Solarina Ho
TORONTO, April 14 (Reuters) - Canada's dollar weakened against the U.S. currency on Thursday following weaker-than-expected Canadian manufacturing data and renewed worries about peripheral European government debt.
A report showed manufacturing sales fell in February, its biggest dip since August 2009, as auto sales pulled back after a January surge and the strong Canadian dollar continued to hobble exporters. [ID:nN14146333]
"The (manufacturing) number was pretty weak and manufacturing is still a pretty big fraction of the Canadian economy," said Jacqui Douglas, a currency strategist at TD Securities.
"That being said though, I think USD/CAD is mostly being driven by what the U.S. dollar is doing ... Overnight we saw a pretty big negative turn in risk sentiment. I think the markets are pretty worried about Europe again today."
At 9:04 a.m. (1305 GMT), the currency CAD=D4 stood at C$0.9662 to the U.S. dollar, or $1.0350, softening from Wednesday's North American finish of C$0.9624 to the U.S. dollar, or $1.0391.
The U.S. dollar found strength from a weaker euro, following talk that Greece and possibly Ireland may be forced to restructure their ballooning debts. One central banker warned that such a move by Athens would be a "catastrophe". [FRX/] [ID:nLDE73D0XQ]
But the dollar extended declines against the yen after data showed initial U.S. weekly jobless claims came in higher than expected.
Separately, a Reuters poll showed Canada's economic outlook has improved in recent months, boosted by stronger commodity prices, though the pace of growth is expected to soften slightly next year. [ECILT/CA]
TD's Douglas said the Canadian dollar looked set to trade within a range between an early session low of C$0.9670 on the support side and the C$0.9600 range on the resistance side.
Canadian bond prices were higher across the curve as investors sought safety, mirror U.S. Treasuries, which added to earlier gains following the higher-than-expected U.S. claims for unemployment benefits. [US/]
The two-year bond CA2YT=RR was up 7.5 Canadian cents to yield 1.784 percent, while the 10-year bond CA10YT=RR gained 19 Canadian cents to yield 3.348 percent. (Editing by Jeffrey Hodgson)