CANADA FX DEBT-C$ firms on strong U.S. retail data

* C$ at C$0.9919 vs US$, or $1.0082
    * U.S. retail sales boost sentiment
    * Euro zone data weighs
    * Bond prices mostly lower

    By Jon Cook
    TORONTO, Aug 14 (Reuters) - The Canadian dollar rallied to a
session high against its U.S. counterpart on Tuesday, tracking
riskier assets up after data showed U.S retail sales rose in
July for the first time in four months.
    U.S. retail sales rose 0.8 percent last month, the Commerce
Department said on Tuesday. It was the biggest gain since
February and well above analysts' expectations, bolstering the
view that the slowdown in economic growth during the second
quarter will prove temporary. 
    "It's only one month's data in a fresh quarter, but this is
a pretty impressive U.S. retail sales print," Derek Holt, an
economist with Scotiabank, said in a research note.
    Canada's currency firmed to C$0.9906 versus the
greenback, or $1.0095, from around C$0.9916, or $1.0085, before
the release.
    The U.S. number overshadowed weak euro zone data earlier on
Tuesday. Europe's economy contracted by 0.2 percent in the
second quarter, while Germany's forward-looking ZEW sentiment
index slid for a fourth month running, undercutting even the
lowest estimate in a Reuters poll. 
    Canada's dollar weakened overnight after the euro zone data
was released, touching a session low against the U.S. dollar at
C$0.9941, or $1.0060.
    "The European GDP came in on expectations so there wasn't
really a surprise there," said Mazen Issa, macro strategist at
TD Securities. 
    Around 9 a.m. EDT (1300 GMT), the Canadian dollar was at
C$0.9919 versus its U.S. counterpart, or $1.0082, slightly
higher than Monday's close at C$0.9925 against the U.S. dollar,
or $1.0076.
    Markets have rallied recently on expectations the European
Central Bank will step in next month to lower Spain and Italy's
high borrowing costs after president Mario Draghi's recent
pledge to do all it takes to preserve the currency.
    Hopes the Federal Reserve will also act to stimulate the
economy, perhaps with another round of quantitative easing, or
QE3, has put some downward pressure on the U.S. dollar.
    "It seems like (expectations of) QE3 is the bias right now
in the market," said Issa.
    The Canadian currency has also received a boost following
remarks last week from Bank of Canada Governor Mark Carney that
signaled the central bank may still raise interest rates.
    Issa said the Canadian dollar would likely stay within a
tight range between C$0.9915 and C$0.9941 versus the greenback,
pending the release of Canadian and U.S. CPI data later in the
    Canadian bond prices were mostly lower. The two-year bond
 slid 5 Canadian cents to yield 1.167 percent, and the
benchmark 10-year bond fell 27 Canadian cents to
yield 1.831 percent.