* C$ firms to 97.78 U.S. cents
* Bonds flat across curve
* Canadian retail sales data up 0.5 pct in August
* Domestic inflation muted (Recasts, updates to add retail sales, adds quote)
By Jennifer Kwan
TORONTO, Oct 22 (Reuters) - The Canadian dollar firmed to a session high against its U.S. counterpart on Friday, boosted by firmer equity futures, commodity prices and data showing Canadian retail sales beat expectations.
Retail sales in August increased 0.5 percent from July on rising gasoline prices and a jump in sales at home furnishing stores, Statistics Canada said on Friday. Analysts had, on average, forecast a flat reading.
Statscan also revised its July retail sales figure to show a 0.1 percent rise versus its initial estimate of a 0.1 percent drop. [ID:nN22252766]
The Canadian dollar CAD=D4 rose as high as C$1.0224 to the U.S. dollar, or 97.81 U.S. cents. At 9:04 a.m. (1304 GMT), the currency stood at C$1.0227 to the U.S. dollar, or 97.78 U.S. cents, up from Thursday's close at C$1.0263 to the U.S. dollar, or 97.44 U.S. cents.
"Retail sales was above expectations," said Camilla Sutton, chief currency strategist at Scotia Capital.
"There was a revision higher as well to the July numbers. It's a bit stale coming from the summer, but still it's a positive print for Canada as our data has been a bit uneven lately so this is a positive piece in terms of updating us on where the consumer sits."
Also propping up the currency was a firmer tone in U.S. equity futures, while oil and metals prices also rose. [.N] [GOL/] [MET/L]
The Canadian dollar had already firmed against its U.S. counterpart after data earlier on Friday showed domestic inflation rose as expected.
Canada's annual inflation rate rose to 1.9 percent in September from 1.7 percent in August, in line with consensus. The annual core inflation rate, which strips out volatile items and the effects of tax changes, dropped to 1.5 percent from 1.6 percent. This signaled some softness as analysts had forecast it would stay unchanged. [ID:nN22157729]
Sheryl King, chief Canadian economist at Bank of America Merrill Lynch, said the latest inflation data was unlikely to strengthen the resolve of those who think the Bank of Canada will begin to raise interest rates soon.
The central bank paused on rates earlier this week, and said that it would have to consider any further rate hikes carefully, given the patchy global recovery, a weak U.S. outlook and expected curbs on Canadian growth. [ID:nN20223890]
"I don't think it's much in the way of a market mover simply because of what we already know from the Bank of Canada," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.
He said there is still a chance the bank could hike rates again as soon as March 2011.
"But we've got so much data between now and then, that they have the luxury really of sitting back and waiting to see how the data pans out," said Chandler. "To be honest in the current environment, it's probably demand figures that will be a little more important than inflation figures."
More broadly, focus will shift to the Group of 20 meeting this weekend in South Korea. Many expect finance and central bank chiefs to try to reach agreement on a common path to manage currency, trade and macroeconomic imbalances.
Canadian bond prices were mostly flat as the market remained largely subdued ahead of November's crucial Federal Open Market Committee meeting, where the Fed could announce further monetary stimulus. [US/]
The two-year bond CA2YT=RR was up 1 Canadian cent to yield 1.389 percent, while the 10-year bond CA10YT=RR was unchanged to yield 2.760 percent. (Additional reporting by Claire Sibonney; editing by Jeffrey Hodgson)