*C$ ends at C$1.0105 vs US$, or 98.96 U.S. cents
*C$ up 2.7 pct for week, biggest weekly gain since July
*US retail sales, Canada factory sales beat estimates
*Bond prices fall across the curve (Updates to close)
By Claire Sibonney
TORONTO, Oct 14 (Reuters) - The Canadian dollar climbed against its U.S. counterpart on Friday and notched its biggest weekly gain in more than three months as optimism grew that Europe is on track to resolve its debt crisis and that North America might dodge a recession.
Group of 20 finance ministers and central bank chiefs began two days of talks in Paris on Friday, which investors hope will provide a basis for a draft plan to stem the debt crisis in time for a European Union summit on Oct. 23. [ID:nL5E7L300R]
The positive mood rekindled a rally in the euro and spilled over into North American equities and commodities with oil prices jumping 3 percent and supporting Canada's resource-driven dollar. [MKTS/GLOB]
"All in all, Canada is performing well with this drop in risk aversion, and overall risk appetite having increased with the combination of the U.S. data and the hope of some resolution for Europe in the banking sector," said Camilla Sutton, chief currency strategist at Scotia Capital.
Canadian manufacturing sales surged for a second straight month in August, data on Friday showed, and came in more than three higher than expected as a jump in aerospace production outweighed a decline in the auto sector. [ID:nS1E78E05E]
U.S. retail sales grew at the fastest pace in seven months in September as consumers shook off concerns about a weak stock market and political gridlock, giving more momentum to the economic recovery. [ID:nN1E79D09D]
The U.S. numbers carried a lot of weight, said David Tulk, chief Canada macro strategist at TD Securities, "especially in the consumer sector, where we're looking for some sense of optimism".
The Canadian dollar CAD=D3 ended the North American session at C$1.0105 against the U.S. dollar, or 98.96 U.S. cents, up from Thursday's close of C$1.0197 to the U.S. dollar, or 98.07 U.S. cents. The currency ended up 2.7 percent for the week, its biggest weekly percentage gain since July.
In its bullish mood, the market brushed off a report that showed U.S. consumer sentiment slipped more than expected in early October to the lowest level in more than 30 years. It also paid little attention to a credit rating downgrade for Spain, but rallied on strong earnings from Google Inc.
"For Canada, next week is still going to be taking its cues from the broader moves in both the Canadian and U.S. markets," Sutton said, noting critical inflation numbers are due in both countries.
"It all depends on if we get any more news out of Europe and how risk aversion continues," she added. "But I suspect right now we are definitely in the mood of short-covering."
She said an important resistance level for the currency is C$1.0075 and expects the range for the next week to hold between C$0.9937 and C$1.02.
Canadian bond prices sold off across the curve, underperforming weak U.S. Treasuries. [US/]
The two-year Canadian government bond CA2YT=RR fell 16 Canadian cents to yield 1.063 percent, while the 10-year bond CA10YT=RR plunged 98 Canadian cents to yield 2.401 percent. (With reporting by John McCrank; editing by Peter Galloway)