* C$ rises as high as C$0.9912, or $1.0089
* C$ finished at C$0.9954, or $1.0046
* Retail sales rise 1.3 percent (Adds details, comment)
TORONTO, Jan 21 (Reuters) - The Canadian dollar strengthened against the greenback on Friday as unexpectedly strong Canadian retail sales data increased optimism about the outlook for economic growth.
The report, along with other recent data, stood in contrast to signals from the Bank of Canada earlier this week that sluggish growth and the strong Canadian dollar could keep interest rates on hold for longer than markets had expected. [ID:nN18290983]
"The relief today for the Canada bulls -- and there's still plenty of Canada bulls out there -- was the good retail sales number this morning ... it's not all doom and gloom for the currency," said Scotia Capital's Steve Butler, director of foreign exchange trading.
The currencyfinished at C$0.9954 to the U.S. dollar, or $1.0046, firming from its C$0.9971, or C$1.0029 North American close on Thursday. It rose as high as C$0.9909 after the release of the data.
November retail sales climbed 1.3 percent versus a forecast of a 0.5 percent increase, with higher auto sales helping the figure to notch its biggest gain since March 2010. It was the sixth consecutive month of retail sales gains. [ID:nN21214058]
"It was surprisingly upbeat ... it was generalized strength. We also saw an upward revision in the prior month and the gains weren't due to higher prices, it was all in volume," said Doug Porter, deputy chief economist at BMO Capital Markets.
"Just as it looked like Canadian consumers were starting to wind down, they actually have picked it right back up again. It does set a better tone for November GDP."
Healthy wholesale trade data and a gain in the composite leading indicator on Thursday also buoyed views that Canada's fourth-quarter gross domestic product report could be stronger than predicted. [ID:nN2083816]
Porter said that while the retails sales report does put a slightly rosier glow on the economy, he doesn't think it would be enough to really change the Bank of Canada's outlook.
A series of strong data would typically prompt a central bank to move forward interest rate hikes. Higher rates tend to support currencies by attracting capital flows.
The Canadian dollar eased from the session high following a retreat in Toronto equities and commodity prices. And U.S. crude oil prices slipped as rising inventory had investors concerned that more stock builds could be coming. [O/R] [MKTS/GLOB] [.TO]
Butler said the next resistance levels for the Canadian dollar will be found around C$0.9880 to C$0.9890, followed by a range of C$0.9820 to C$0.9830. Support for the commodity-linked currency is seen around C$1.0040.
"We failed to get through 99 cents today, which was a little bit of a disappointment," said Butler.
"It did help to reinforce the market that even though the Bank of Canada is concerned about some aspect of the Canadian economy ... the data still points to some positive things."
Next week, the U.S. Federal Reserve's interest rate decision will be in focus, along with Canadian inflation data due out Jan 25. [ID:nN21220619]
Canadian bond prices were weaker across the curve as some investors lost interest in safe-haven debt. The two-year bondwas down half a Canadian cent to yield 1.726 percent, while the 10-year bond was off 18 Canadian cents to yield 3.328 percent. (Editing by Jeffrey Hodgson)
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