* C$ slides as low as C$0.9772 , or $1.0233
* Inflation below forecast, but above BoC target range
* Canada retail sales stall in March (Updates prices, adds comments)
By Ka Yan Ng
TORONTO, May 20 (Reuters) - Canada's dollar drooped on Friday and government 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, along with mixed economic reports from other corners of the world, ongoing European debt concerns, and the recent selloff in commodity prices, signaled to the market that the Bank of Canada will keep its key rate at 1 percent for some time.
The Bank of Canada hiked rates three times last year but has stayed on the sidelines since September as it monitors the economy'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, according to Statistics Canada data on Friday, again above 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, and a touch less than economists' expectations of 3.4 percent
"The CPI wasn't exciting really one way or the other. It was pretty close to expectations," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
"But the retail sales was decidedly soft and that's a good part of what's happening both in credit and currency markets in Canada."
He added the bond price move may also have been exaggerated by concern around coupon reinvestments on June 1, a date on which billions of dollars in bond interest is paid and redeployed, as well as thinned-out markets ahead of a long weekend in Canada.
The currency CAD=D4 slid as low as C$0.9772 to the U.S. dollar, or $1.0233, following the Canadian data. At 12:21 p.m. (1621 GMT), it had pared losses, and was at C$0.9719 to the U.S. dollar, or $1.0289, 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, jumped 16 Canadian cents to yield 1.607 percent. The 10-year bond CA10YT=RR rose 60 Canadian cents to yield 3.145 percent.
The falling yields reflected a reassessment of rate hike expectations. Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed traders have cut their bets on rate hikes at every Bank of Canada announcement date from July to December. BOCWATCH
Few expect the central bank to hike rates at its next policy setting on May 31 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."
Canadian markets are shut on Monday for Victoria Day. (Editing by Jeffrey Hodgson and Peter Galloway)