CANADA FX DEBT-C$ recoups losses as US$ softens on retail sales

* Canadian dollar at C$1.2653 or 79.03 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, March 12 (Reuters) - The Canadian dollar recouped
all of the previous session's losses against its U.S.
counterpart on Thursday as the greenback retreated on data that
showed U.S. retail sales fell unexpectedly in February, the
third straight month of declines.
    The drop in sales was fairly broad-based, suggesting poor
winter weather kept shoppers away, and could hurt economic
growth in the first quarter. 
    The U.S. dollar index, which measures the greenback against
six major currencies, touched its highest level in nearly 12
years overnight on anticipation the U.S. Federal Reserve will
hike interest rates sometime in the coming months, but it
softened ahead of the retail sales data.
    "(The U.S. dollar has) gained a lot of momentum in the last
couple of weeks. We've taken a little bit of a breather from
that," said Mark Chandler, head of Canadian fixed income and
currency strategy at RBC Capital Markets. He added, however,
that the Canadian dollar was among the currencies benefiting the
least from Thursday's  U.S. dollar weakness.
    "It's one of the reasons why we also didn't get hurt as much
even though it looked bad from a Canada perspective ... We're
the ones that are in a position to benefit the most from our
proximity to the U.S. and the improving U.S. economy."
    The Canadian dollar CAD=D4 was trading at C$1.2653 against
the U.S. dollar, or 79.03 U.S. cents at 9:13 a.m. (1413 GMT),
more than a cent stronger than Wednesday's finish at C$1.2761,
or 78.36 U.S. cents.
    Domestically, investors were also taking stock of comments
from the Bank of Canada as well as a slew of lower-tier economic
    A central bank economist said on Thursday the bank was
seeing more signs of demand for nonenergy exports and business
investment, helped by the weaker Canadian dollar, factors that
are crucial for a return to sustainable growth. 
    Canada's household debt-to-income ratio rose to a record
high in the final quarter of 2014, hitting 163.3 percent, while
Canadian home prices rose in February from a month and a year
earlier. New home prices slipped in January, however, the first
national decline since July 2010. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 3 Canadian cents
to yield 0.566 percent and the benchmark 10-year 
rising 37 Canadian cents to yield 1.465 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)