CANADA FX DEBT-C$ little changed after previous session's rout
* Canadian dollar at C$1.1086 or 90.20 U.S. cents * Bond prices lower across the maturity curve By Leah Schnurr TORONTO, Feb 20 (Reuters) - The Canadian dollar was little changed against the greenback on Thursday, stabilizing after a more than 1 percent drop in the previous session while investors braced for a closely watched inflation report at the end of the week. The currency was also pressured by downbeat economic data out of China, which showed a continued contraction in manufacturing activity in the world's second-largest economy. The pace of business activity in the euro zone also cooled slightly in February. Wednesday's sharp drop marked an interruption in the recovery the loonie has made this month since hitting a 4-1/2-year low at the end of January. "It really was a temporary reprieve," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto. A shift toward a more dovish stance for the Bank of Canada last year hit the loonie hard in recent months and analysts have been forecasting that with the fundamentals unchanged, the currency was likely resume its downward path. The central bank has expressed concern about the weak inflation environment and is seen keeping interest rates low for some time. "Until that changes, it's hard to see where the market would really get more positive on the Canadian dollar," said Mikolich. The Canadian dollar was at C$1.1086 to the greenback, or 90.20 U.S. cents, slightly weaker than Wednesday's close of C$1.1082, or 90.24 U.S. cents. Investors were turning their attention to Friday's inflation report, which will be parsed for what impact it could have on monetary policy. The Bank of Canada next meets in March. The annual inflation rate is seen picking up modestly to 1.3 percent in January from the previous month. Retail sales for December will be released at the same time, with economists forecasting a decline of 0.4 percent. Canadian government bond prices were lower across the maturity curve, with the two-year off half a Canadian cent to yield 1.004 percent and the benchmark 10-year down 6 Canadian cents to yield 2.450 percent.
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