* C$ falls to 99.21 U.S. cents
* Bonds prices mixed following Bernanke, data (Updates to afternoon)
By Claire Sibonney
TORONTO, Oct 15 (Reuters) - The Canadian dollar retreated after almost reaching parity against the greenback on Friday, as weakness in equity markets overshadowed fresh signals that U.S. monetary policy could ease further.
U.S. financial stocks have been hit on concerns the widening foreclosure crisis could not only affect corporate profits but spread to credit markets and the overall economy. [.N]
Also threatening confidence, U.S. consumer sentiment unexpectedly dipped in early October to its weakest level since July. [ID:nN15191048]
"The data suggests consumers still feel pretty gloomy about their financial situation and therefore unlikely to spend a whole lot on Canadian-made products, so that weighed on the loonie," said Sal Guatieri, senior economist at BMO Capital Markets.
Federal Reserve Chairman Ben Bernanke said that high unemployment and low inflation point to a need for more stimulus, but he offered no details on the U.S. central bank's next step. [ID:nN15187998]
The expectation of quantitative easing by the Fed -- essentially creating new money to buy assets -- has been driving the U.S. dollar lower and higher-yielding currencies, such as Canada's, higher.
"The Canadian dollar got an initial lift from Chairman Bernanke's comments that suggest he is firmly planted in the easing camp," added Guatieri.
U.S. consumer price data for September, which came in weaker than expected, also highlighted the risk of a disinflationary environment, a key concern for the Fed.
The Canadian currency rose as high as C$1.0012 versus the U.S. dollar, or 99.88 U.S. cents, following Bernanke and the U.S. data, before pulling back.
At 11:40 a.m. (1540 GMT), the Canadian dollar stood at C$1.0080 to the U.S. dollar, or 99.21 U.S. cents, down from Thursday's finish at C$1.0060 to the U.S. dollar, or 99.40 U.S. cents.
Also supporting the currency were Canadian factory sales, which jumped more than expected in August. [ID:nN15446129]
Camilla Sutton, chief currency strategist at Scotia Capital, stressed that the Canadian dollar is not currently trading on its fundamentals.
"It's really not a CAD story like it was in the spring when we went to parity, this is very much a U.S. dollar weakness story," she said. "As soon as the U.S. dollar weakness story fades that will immediately fade the rally in CAD."
Bernanke's comments also drove the Australian dollar -- Canada's sister commodity currency -- to surge above parity with the greenback on Friday for the first time since flotation in 1983. [FRX/]
"I think the Canadian dollar stands a good chance of remaining around parity," added Guatieri. "In the short term though, it could suffer if there's increased concerns about the U.S. foreclosure problems. That could weigh on equity markets and drive up the U.S. dollar temporarily."
Government bond prices were mixed with short-term issues firmer and longer-term prices weakening.
"They've gained at the short and mid-sections of the yield curve because that is likely where the Fed will target its asset purchases," said Guatieri.
The two-year bond CA2YT=RR was up 3 Canadian cents to yield 1.426 percent, while the 10-year bond CA10YT=RR shed 17 Canadian cents to yield 2.784 percent.
Prices of longer-dated issues tracked U.S. Treasury securities lower as yields rose after the weak consumer price data and Bernanke's speech led traders to bet the U.S. central bank would try to create inflation. [US/]