* Loonie weakens 0.3% against the greenback * Canadian retail sales decrease by 1.2% in October * Loonie is on track to be little changed for the week * Canadian bond prices rise across the yield curve By Fergal Smith TORONTO, Dec 20 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday, giving up this week's gains after domestic data showing a surprise decline in retail sales revived bets that the Bank of Canada would cut interest rates next year. Canadian retail sales were down 1.2% in October from September at C$50.92 billion, on weaker sales at motor vehicle and parts dealers, as well as building material and garden equipment supplies dealers, Statistics Canada said. Analysts had forecast a 0.5% increase. "With the exception of housing markets, Canadian economic releases in the past few weeks have been unambiguously negative," Omar Abdelrahman, an economist at TD Economics, said in a note. "This one is no different. As a result, we are expecting a continued tepid performance for the Canadian economy in the fourth quarter." Chances of a rate cut over the coming year, which had dwindled in recent weeks, jumped to nearly 50% from about 25% before the data, the overnight index swaps market indicated. Separate data showed that new-home prices fell 0.1% in November after rising 0.1% in October. At 9:39 a.m. (1439 GMT), the Canadian dollar was trading 0.3% lower at 1.3164 to the greenback, or 75.96 U.S. cents. The currency traded in a range of 1.3123 to 1.3181. For the week, the loonie was on track to be little changed. On Wednesday, it notched a seven-week high at 1.3103, supported by data showing a pick-up in Canadian underlying inflation and a trade deal between the United States and China. Canada is a major exporter of commodities, including oil, so its economy could benefit from an improved outlook for global trade. The price of oil was set on Friday for a third straight weekly gain after easing U.S.-China trade tensions lifted business confidence and the outlook for global economic growth. Canadian government bond prices were higher across the yield curve, with the two-year up 6 Canadian cents to yield 1.665% and the 10-year rising 21 Canadian cents to yield 1.637%. The gap between Canada's 10-year yield and its U.S. counterpart widened by 4.6 basis points to a spread of 29.3 basis points in favor of the U.S. bond. (Reporting by Fergal Smith; Editing by Steve Orlofsky)
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