* C$ closes at C$0.9909 vs US$, or $1.0092
* Bonds rally across curve on Libya revolt
* Canada December retail sales down (Updates to close, recasts)
By Claire Sibonney
TORONTO, Feb 22 (Reuters) - Canada's currency weakened to its lowest level in more than a week against the U.S. dollar on Tuesday, succumbing to a broad sell-off in riskier assets over a revolt in Libya, despite a surge in oil prices.
World stocks and growth-related currencies tumbled amid the turmoil, as Libya declared force majeure on all oil product exports and leader Muammar Gaddafi vowed to die in his country as a martyr. [MKTS/GLOB]
The uncertainty over Mideast supplies drove oil prices to 2-1/2 year highs and currencies such as the Swiss franc, yen and greenback benefited from safe-haven demand. [O/R]
"The rise in crude pricing was of net benefit to the C-dollar, but ultimately the global macro factors that are now influencing a number of currencies ... contributed to bids in dollar/Canada," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
The Canadian dollar CAD=D4 fell as low as C$0.9919 to its U.S. counterpart, or $1.0082, its weakest since Feb. 11.
Spitz said heavy stop-loss orders were taken out around C$0.9890 to C$0.9900. The next key areas of support for the Canadian currency are eyed around C$0.9965, followed by C$0.9988 and C$1.0040 on the other side of parity.
Market players were also digesting Canadian retail sales for December, which dropped by 0.2 percent in December, although November's strong growth was revised up by the same amount. [ID:nN22272852]
The report, the only major domestic release for the week, is one of the last key pieces of data ahead of the Bank of Canada's March 1 policy-setting decision.
"It was a little bit weaker than expected but the market has got bigger fish to fry," said Doug Porter, deputy chief economist at BMO Capital Markets.
"On balance, the retail sales were a tad disappointing, especially on the headline. Ex-autos, it wasn't very much of a surprise and we did get a small upward revision to the prior month."
The currency CAD=D4 closed the North American session at C$0.9909 to the U.S. dollar, or $1.0092, down from Friday's finish at C$0.9860 to the U.S. dollar, or $1.0142. Most Canadian financial markets were closed on Monday.
FLIGHT TO SAFETY
Canadian government bonds were firmer across the curve in a flight to safer assets driven by U.S. Treasuries as risk sentiment took a hit from the disruption in Libya. [US/]
The weaker-than-expected retail sales data also helped, suggesting there is little pressure on the Bank of Canada to quickly resume its rate-hike campaign.
None of the 12 primary dealers surveyed by Reuters last week expect the Bank of Canada to hike rates in March, with most still calling for an interest rate increase in the first half of the year. May was seen as the most likely month for the next central bank tightening. [CA/POLL]
Canada on Feb. 11 reported an unexpected trade surplus in December after nine months of deficits, which contributed to a more upbeat outlook on the economy. However, the retail sales data suggested the outlook is more mixed.
Bank of Canada Governor Mark Carney suggested on the weekend the central bank's projection in January of 2.3 percent annualized growth in the fourth quarter could be tweaked higher after growth came in at a disappointing 1 percent in the third quarter. [ID:nN19302110]
The two-year Canadian government bond CA2YT=RR rallied 18 Canadian cents to yield 1.797 percent, while the 10-year bond CA10YT=RR jumped 89 Canadian cents to yield 3.358 percent. (Additional reporting by Ka Yan Ng; editing by Jeffrey Hodgson)