CANADA FX DEBT-C$ retreats as data disappoints, markets calmed

(Rewrites throughout with closing figures, FX strategist
comments, details)
    * Canadian dollar at C$1.3092 or 76.38 U.S. cents
    * Bond prices mostly higher across the maturity curve

    By Solarina Ho
    TORONTO, Aug 14 (Reuters) - The Canadian dollar slipped
against the greenback on Friday, as calm returned to markets
following a volatile trading week and investors digested U.S.
and Canadian data that underscored the divergence between the
countries' central banks.
    In Canada, manufacturing sales jumped in 1.2 percent in
June, the biggest gain since March, but figures still fell short
of economists' elevated projections for a 2.1 percent rise.
    "It's definitely indicative of weakness in the Canadian
economy at the end of the day. The numbers are not blowing the
doors off," said Karl Schamotta, director of FX risk and
strategy at Cambridge Global Payments.
    "As we see an expansion in the demand in the U.S. we
should've seen a greater expansion in the manufacturing sector
in Canada."
    Markets were pricing in a higher probability of a 25 basis
point interest rate cut in September following the news, though
the probability remained on the lower end, just shy of 25
    South of the border, the U.S. dollar edged higher against a
basket of key counterparts following encouraging data on U.S.
producer prices and industrial output, which buoyed expectations
the Federal Reserve could be hiking interest rates as early as
next month. 
    Market participants had been jittery about the possibility
that the falling yuan, following China's devaluation earlier
this week, could derail the U.S. central bank's policy plans.
    The Canadian dollar ended the session at C$1.3092
to the greenback, or 76.38 U.S. cents, weaker than the Bank of
Canada's official close of C$1.3064, or 76.55 U.S. cents on
    "I think we're seeing a bit of a correction to the knee-jerk
reaction that we had over the last few days," said Schamotta,
who expects the loonie to trade between C$1.30 and C$1.35 over
the next three months.
    The currency stayed within a relatively narrow trading
range, between C$1.3017 and C$1.3096, on Friday.
    The price of crude, always a big driver for oil-exporting
Canada, remained just shy of 6-1/2-year lows.
    Canadian government bond prices were mostly higher across
the maturity curve, with the two-year price up half a
Canadian cents to yield 0.411 percent and the benchmark 10-year
 rising 9 Canadian cents to yield 1.390 percent.
    The Canada-U.S. two-year bond spread widened to -31.5 basis
points, while the 10-year spread widened to 80.8 basis points.

 (Reporting by Solarina Ho; Editing by Grant McCool)