* C$ finishes at 82.67 U.S. cents
* Retreat breaks week of gains
* Short-covering blamed for currency's fall
* Bond prices flat to lower (Updates to close, adds details quote)
TORONTO, April 16 (Reuters) - The Canadian dollar tumbled more than 1 U.S. cent from the 13-week high it raced to earlier on Thursday as its move through a key level sparked a wave of selling as traders felt it got ahead of itself.
The Canadian dollar fell to C$1.2148 to the U.S. dollar, or 82.32 U.S. cents, by early afternoon, down from an earlier high of C$1.1982 to the U.S. dollar, or 83.46 U.S. cents.
The currency cracked the C$1.20 level early in the session in the aftermath of data that showed Canadian factory sales rose in February for the first time since July, thanks to a slight rebound in the battered auto sector. [ID:nN17446129]
But the dollar's rise was short-lived as it encountered a wave of downward pressure moments after it breached C$1.20 as traders appeared uncomfortable with it at such lofty levels given its impressive rally off a four-year low last month.
"It felt like Canada was really forced below C$1.20 and after the level broke it just felt like the Canada buying had disappeared and the market was all caught long Canada, and it's just been a bit of a chase all afternoon," said Steve Butler, director of foreign exchange trading at Scotia Capital.
North American equities rallied late in the day, helping the currency rebounded somewhat from its session lows as investors flocked to riskier assets.
The Canadian currency finished at C$1.2096 to the U.S. dollar, or 82.67 U.S. cents, down from C$1.2032 to the U.S. dollar, or 83.11 U.S. cents, at Wednesday's close.
A growing appetite for risk amid rising optimism for a recovery in the global economy, has helped to buoy the Canadian dollar and weigh on the U.S. dollar's safe haven status.
However, the greenback gained on Thursday, supported by weak economic readings, including U.S. housing starts and building permits figures. [FRX/]
Investors will now be looking ahead to Canada's consumer price index for March due before the market open on Friday.
BONDS FLAT TO LOWER
Domestic bond prices were flat to lower across the curve, mimicking the larger U.S. debt market as Wall Street stocks gained and dented the appeal for safe-haven government bonds. [ID:nNYD000464]
"Bonds have held in reasonably well given the rebound in equities," said Mark Chandler, fixed income strategist at RBC Capital Markets. "It's beginning to weigh on them a little at this stage now."
"In terms of Canada, specifically, there has been sort of increased issuance that is providing a little pressure," he added.
Thursday's domestic factory data also helped to keep the pressure on Canadian bonds.
The two-year bond was largely flat, up 2 Canadian cents at C$100.28 to yield 1.118 percent, while the 10-year bond slipped 17 Canadian cents to C$106.88 to yield 2.957 percent.
The 30-year bond pulled back 60 Canadian cents at C$122.55 to yield 3.703 percent. In the United States, the 30-year treasury yielded 3.7230 percent.
Canadian bonds mostly outperformed their U.S. counterparts, with the 30-year 2 basis points below its U.S. counterpart, compared to 1.10 basis points above on Wednesday. (Reporting by Jennifer Kwan and Frank Pingue; editing by Rob Wilson)