* C$ falls to 97.94 U.S. cents
* C$ tracks broad move lower in euro
* Wholesale trade data, BMO deal also drag
* Government bond prices higher (Recasts after wholesale trade data)
By Claire Sibonney
TORONTO, Dec 20 (Reuters) - The Canadian dollar retreated against its U.S. counterpart on Monday, tracking weakness in the euro as markets were hit by fears of further ratings downgrades of debt-stricken euro zone countries and banks.
Moody's Investors Service said it may cut its ratings on some Spanish banks following its multi-notch downgrade of Ireland's credit rating last week, with speculation rising that France and Belgium may also face possible cuts. [FRX/]
The Canadian dollar was the second worst performing major currency behind the euro, despite strength in commodity prices, as the U.S. dollar got a safe-haven push higher.
"It's certainly not the usual suspect ... it's really more related to a bit of renewed strength in the U.S. dollar broadly as the euro has sunk again," said Doug Porter, deputy chief economist at BMO Capital Markets. "As far as I'm aware it's not particularly specific to Canada."
Some soft Canadian data was seen playing a small role in the currency's drop as domestic wholesale trade figures came in below expectations. [ID:nN20186706]
"We saw most of the move in terms dollar/Canada this morning and that move corresponded with the move in euro," said Camilla Sutton, chief currency strategist at Scotia Capital. "The moves happened almost in tandem so it implies that it's probably less CAD-focused news than it is just general market moves and risk aversion."
The Canadian currency fell as low as C$1.0210 against the U.S. dollar, or 97.94 U.S. cents, during the session, almost a penny lower than Friday's close.
Market watchers also speculated that the Canadian currency may be taking a hit from news last week of Bank of Montreal's BMO.TO $4.1 billion stock deal to buy Wisconsin lender Marshall & Ilsley Corp MI.N. [ID:nN20206439]
While there is no cash component to the deal, currency flows could be affected by the assumption that M&I shareholders not interested in holding BMO stock would want to sell it, and in turn sell Canadian dollars.
However, a smaller C$1.05 billion deal announced on Monday by South Africa's Sasol SOLJ.J to buy a half share of a Talisman Energy Inc TLM.TO shale gas property was seen partially offsetting that possible negative impact on the Canadian dollar. [ID:nLDE6BJ04G]
The currency CAD=D4 closed the North American session at C$1.0164 to the U.S. dollar, or 98.39 U.S. cents, down from Friday's close at C$1.0128 versus the greenback, or 98.74 U.S. cents.
With some riskier assets taken off the table, Canadian bond prices were higher across the curve.
The two-year bond CA2YT=RR rose 3 Canadian cents to yield 1.630 percent, while the 10-year bond CA10YT=RR climbed 16 Canadian cents to yield 3.165 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 Ng; editing by Peter Galloway)