* C$ falls to 97.94 U.S. cents
* Government bond prices up across curve
* Canada wholesale trade weaker than expected (Recasts after wholesale trade data)
By Claire Sibonney
TORONTO, Dec 20 (Reuters) - The Canadian dollar retreated against its U.S. counterpart on Monday morning after Canadian wholesale trade figures came in below expectations and U.S. equity markets reversed gains.
The Canadian currency fell as low as C$1.0210 against the U.S. dollar, or 97.94 U.S. cents, almost a penny lower than Friday's close after U.S. indexes declined, weighed by the information technology sector. [.N]
As well, wholesale trade was flat in October from the month before -- versus calls for a 0.8 percent increase -- as auto sector-led gains were offset by a sharp drop in demand for machinery and equipment. [ID:nN20186706]
South of the border, the Federal Reserve Bank of Chicago's national activity index slipped in November, which also dragged on market sentiment. [ID:nNLLKNE6Q8]
"We had weak data from Canada, weak data from the U.S. so that hasn't boded that well for the Canadian dollar," said Camilla Sutton, chief currency strategist at Scotia Capital.
"We haven't really seen a ton of market activity across the board so things feel very quiet ... it feels like we're much closer to Christmas holidays than we actually are."
Early in the session, the Canadian currency drew mild support from firmer commodity prices and positive equity markets overseas.
However, tensions in the Korean peninsula and euro zone concerns were also seen keeping investors wary, but had limited tangible impact on the Canadian dollar. [ID:nL3E6NK01M] [FRX/]
Despite threats of war by Pyongyang, South Korea launched live-fire drills on a disputed island after an emergency U.N. Security Council meeting failed to agree on how to defuse the crisis.
"It's amazing how we've just brushed off Korea," added Sutton. "In terms of Europe, I think the market is very focused on headline risk, but all in all there hasn't been anything concrete enough to shift euro out of its month-to-date trading range."
At 10:30 a.m. (1530 GMT), the Canadian dollar CAD=D4 was at C$1.0198 to the U.S. dollar, or 98.06 U.S. cents, down from Friday's close at C$1.0128 versus the greenback, or 98.74 U.S. cents.
Canadian government bond prices extended gains following the soft wholesale trade data.
The two-year bond CA2YT=RR rose 7 Canadian cents to yield 1.610 percent, while the 10-year bond CA10YT=RR climbed 36 Canadian cents to yield 3.141 percent.
Looking to the rest of the week, the Canadian consumer price index report for November on Tuesday will likely be the highlight of the week, although retail sales and gross domestic product figures for October may also sway the currency.
Inflation has been lower than expected for much of the year, so markets are looking for reassurance the trend won't suddenly be reversed. Such reassurance would leave the central bank in a comfortable position to hold its key interest rate unchanged at 1 percent for at least the first quarter of 2011. For details, see [ID:nN17250600] ECONCA (Additional reporting by Ka Yan N; editing by Peter Galloway)