* Canada dollar loses early gains, drops 0.5 percent
* Upcoming retail sales and inflation data in focus
* Bond prices rise with larger U.S. market
By John McCrank
TORONTO, Aug 18 (Reuters) - The Canadian dollar fell 0.5 percent against the U.S. dollar on Monday, after the commodity-based currency gave up earlier gains as oil prices softened.
Domestic bond prices rose along with the U.S. market, which rallied on fears coming out of the U.S. mortgage sector.
The Canadian dollar closed at C$1.0643 to the U.S. dollar, or 93.96 U.S. cents, down from C$1.0590 to the U.S. dollar, or 94.43 U.S. cents, at Friday's close.
U.S. crude oil prices CLc1 climbed to over $115 a barrel overnight, helping lift the Canadian dollar as high as C$1.0544 to the U.S. dollar, or 94.84 U.S. cents.
Canada is the largest exporter of oil to the United States oil price moves often influence its currency.
Oil prices changed direction during the North American session as it appeared a tropical storm headed for Florida's west coast would miss key oil operations in the Gulf of Mexico. See [ID:nN18505383].
The Canadian dollar also reversed its gains and Shane Enright, currency strategist at CIBC World Markets said that could spell more bad news from a technical perspective.
"I think technically you've got room to take this back towards C$1.08 or C$1.09," he said.
Enright said the Canadian dollar would have to get back to its overnight highs in order to generate any buying interest, which seems unlikely given the extent of the U.S. dollar rebound.
On the data front, a couple key reports later in the week could have an impact on the Canadian dollar.
A retail sales report for June is due on Wednesday and inflation numbers for July are due Thursday.
Other figures include the June wholesale trade report on Tuesday and leading indicators for July on Wednesday.
The data could offer clues as to what the Bank of Canada will do when it next sets rates on Sept. 3.
BOND PRICES RISE
Canadian bond prices rose along with the larger U.S. market, which rallied as stocks fell and investors looked to bonds for safety.
"There is no real trading catalyst up here in Canada, but the U.S. bonds are up because of weakness in U.S. financials," said Sheldon Dong, fixed income strategist at TD Securities.
U.S. mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N each lost 18 percent after a Barron's report suggested the U.S. Treasury may recapitalize the companies, a move that would wipe out shareholders.
The U.S. Treasury denied any such plans. See [ID:nN18494933]
The two-year bond rose 6 Canadian cents to C$101.77 to yield 2.722 percent. The 10-year bond added 27 Canadian cents to C$105.85 to yield 3.536 percent.
The yield spread between the two-year and 10-year bond was 85.0 basis points, up from 81.4 basis points at the previous close.
The 30-year bond gained 31 Canadian cents to C$117.26 for a yield of 3.986 percent. In the United States, the 30-year treasury yielded 4.439 percent.
The three-month when-issued T-bill yielded 2.54 percent, up from 2.45 percent at the previous close. (Editing by Janet Guttsman)