* C$, bond yields fall on lower Canada rate hike odds
* C$ slides as low as C$0.9739 to US$, or $1.0268
* Inflation below forecast, again above BoC target range
* Canada retail sales stall in March (Adds analyst comment, retail sales data, further details)
By Ka Yan Ng
TORONTO, May 20 (Reuters) - Canada's dollar fell sharply on Friday and bond prices ramped higher as unexpectedly weak retail sales and inflation data reduced expectations that the Bank of Canada will soon raise interest rates.
The data, taken with mixed economic reports from other corners of the world, ongoing European debt concerns, and the recent selloff in commodity prices, have combined to remove pressure from central bank to tighten policy.
The Bank of Canada hiked rates three times last year. But it has left its key rate unchanged at 1 percent since September to monitor the economic recovery's progress.
"With persistent Canadian dollar strength, even at these levels, and with the economic backdrops showing benign data ... I don't think the Bank of Canada should be doing a thing," said John Curran, senior vice president at CanadianForex.
"With everything that's going on here globally, the recovery that everybody's speaking of is still very fragile. This still could turn downwards for many countries, including Canada."
Canada's annual inflation rate stayed at 3.3 percent in April, a touch less than economists' expectations of 3.4 percent, according to Statistics Canada data. But it was again over the Bank of Canada's target range of 1 to 3 percent. [ID:nSCLKGE7CE]
A second report showed retail sales were flat in March and actually fell by 0.8 percent in volume terms from February, in a much weaker showing than analysts had forecast. [ID:nSCLKGE7CF]
Both the market and the central bank had expected overall inflation to stay elevated. Bank of Canada Governor Mark Carney predicted on Monday that inflation would remain above the target range of 1 to 3 percent throughout the second quarter but said inflation expectations remained well-anchored.
The steady inflation figure in April was in contrast to the surprising jump in March.
The figures on Friday caused market players to pare back rate hike expectations.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed traders cut the odds of rate hikes at every announcement date this year from July to December. BOCWATCH
Few expect the central bank to hike rates at its next policy setting in May as well. [CA/POLL]
"I would think right now the risk to our (interest rate hike) call, if anything, is taking it out further for the year as a whole," said Derek Holt, economist at Scotia Capital.
"For now we're sticking to the October call, but with the way we expect the rest of the year to unfold I think the tail risk is later rather than sooner."
The currency slid as low as C$0.9739 to the U.S. dollar, or $1.0268, following the morning's domestic data. At 9:25 a.m. (1325 GMT), the currency CAD=D4 was at C$0.9711 to the U.S. dollar, or $1.0298, down from Thursday's close at C$0.9682 to the U.S. dollar, or $1.0328.
Canada's two-year bond CA2YT=RR, particularly sensitive to Bank of Canada rate moves, was up 13 Canadian cents to yield 1.627 percent. The 10-year bond CA10YT=RR rose 30 Canadian cents to yield 3.180 percent.
Curran expected trading would thin out by noon ahead of the long weekend in Canada. Canadian markets are shut on Monday for Victoria Day. (Editing by Jeffrey Hodgson)