* C$ ends down at 96.30 U.S. cents
* Bond prices hold gains after cautious Fed statement
* Canada retail sales, US home sales weaker than thought
* Carney says watching Canadian dollar closely (Updates to close)
By Ka Yan Ng
TORONTO, June 23 (Reuters) - A pair of soft economic reports triggered a sharp fall in the Canadian dollar against its U.S. counterpart on Wednesday, though it pruned losses by session's end after the U.S. Federal Reserve reiterated its pledge to keep interest rates low for an extended period.
The Fed's statement, which struck a cautious tone on the U.S. economy, met market expectations. [ID:nTRU002480]
But it came after data that showed U.S. new home sales fell a record 32.7 percent in May to the lowest level in at least four decades. [ID:nN23209668]
The housing data pointed to more economic uncertainty and spurred safe-haven buying of the U.S. dollar, pushing the Canadian dollar to its lowest point since June 9 at C$1.0461 to the U.S. dollar, or 95.59 U.S. cents.
It subsequently pared losses but still finished lower for a third straight session at C$1.0384 to the U.S. dollar, or 96.30 U.S. cents. That was down from C$1.0291 to the U.S. dollar, or 97.17 U.S. cents, at Tuesday's close.
"Essentially, the worry in the market is that the U.S. economy is weaker than people had thought, and that would in turn would play into the Canadian economy," said Camilla Sutton, currency strategist at Scotia Capital.
She noted as well that it was a big day for technical trading as the 50-day moving average crossed the 100-day.
"That's an event that doesn't happen that often, and when it happens, it tends to be a pretty good indicator of pricing pressure in the market," she said. "Now we've seen the reverse ... It implies there is upward pressure in dollar/Canada."
WEAK RETAIL SALES SPARKS C$ DECLINE
The currency's weakness began shortly after figures showed Canadian retail sales fell a sharper than expected 2 percent in April from March. That was well below the median forecast of a 0.4 percent decline by analysts surveyed by Reuters. [ID:nN23196800]
"This was quite a disappointing report. The broad-based nature of it suggests that, during the month, Canadians more or less sat on their hands," said Millan Mulraine, economics strategist at TD Securities.
He added, however, that the report was unlikely to prevent the Bank of Canada from raising rates next month.
The Canadian currency was also tugged lower by weak oil prices, which fell towards $76 a barrel, while equity markets were mixed.
Bank of Canada Governor Mark Carney said in a Reuters interview on Wednesday that the central bank was watching the Canadian dollar as a factor in monetary policy, echoing comments made by Deputy Governor Timothy Lane on Tuesday. [ID:nN22144820]
"It's one of the factors we have to take into consideration every time we make a decision ... we're watching that closely," he told Reuters Insider. [ID:nN23179479]
"Absolute strength matters. Volatility matters a lot though as well."
BOND PRICES SOAR
Canadian government bond prices were all in positive territory after the morning's run of soft data and held gains following the Fed's rate announcement.
The two-year government bond CA2YT=RR was up 16 Canadian cents to yield 1.610 percent, while the 10-year bond CA10YT=RR gained 17 Canadian cents to yield 3.239 percent.
Canadian bonds were mixed against U.S. Treasuries, with short-term bonds outperforming and long-dated issues underperforming. The Canadian 10-year bond yield was 11.6 basis points above its U.S. counterpart, compared with 9.4 basis points on Tuesday. (Reporting by Ka Yan Ng; editing by Peter Galloway)