CANADA FX DEBT-C$ retreats from 3-1/2-month high, ends lower

* C$ closes at C$0.9897 vs. $US, or $1.0104
    * C$ touches intraday high of C$0.9843, or $1.0160
    * Bond prices mixed

    By Solarina Ho
    TORONTO, Aug 21 (Reuters) - The Canadian dollar pulled back
from three-and-a-half-month highs against its U.S. counterpart
on Tuesday as the currency failed to sustain earlier gains on
the back of higher global equities, commodity prices and
commodity-driven currencies.
    "It started off with the risk-on appetite emanating from
what happened with Australia and the European debt talks. That
put some ample moves into non-U.S. trading," said C.J. Gavsie,
managing director of foreign exchange sales at BMO Capital
Markets, adding that bullish moves in oil also contributed to
    "As we saw Europe go home and we lost the trading out of
London, the North American aspects have taken over," said
Gavsie, adding that profit-taking from short USD/CAD positions
was a factor.
    The Australian and New Zealand dollars firmed after the
Reserve Bank of Australia sounded content with policy where it
was, while talk of stimulus measures in regional powerhouse
China underpinned risk appetite. 
    Meanwhile, the euro rallied amid speculation the European
Central Bank will take strong action to ease Spanish and Italian
borrowing costs. 
    U.S. crude futures hit a three-month peak above $97 a barrel
on the ECB hopes, tensions in the Middle East and as the
September crude contract approached expiration. 
    The Canadian dollar hit an intraday high of C$0.9843 versus
the U.S. dollar, or $1.0160, its firmest level since May 3, but
closed at C$0.9897, or $1.0104, weaker than Monday's North
American session close at C$0.9884, or $1.0117.
    Camilla Sutton, chief currency strategist at Scotiabank,
cautioned that near term, the currency's recent surge could be
    "Anything we measure it against, all the fundamental drivers
for CAD are positive for CAD which is good. However, if we look
at it on any of the charts, it has really overstepped its
rally," she said.
    Wednesday's Canadian retail sales data, comments from Bank
of Canada's Mark Carney who is speaking to the Canadian Auto
Workers union and the U.S. Federal Reserve's FOMC minutes will
all be in focus, though major swings in the Canadian dollar are
not expected.
    "(Carney)'s going to probably going suggest the Canadian
dollar is at relatively stronger levels than where they'd like
it. They'd like to see it closer to parity or on the weaker side
of parity to the U.S. dollar," said BMO's Gavsie, adding that
the domestic news was mostly priced into the currency and that
he expected to see it trend toward the low C$0.99 level.
    Canadian bond prices were mixed across the curve, with the
two-year bond up half a Canadian cent to yield 1.188
percent, and the benchmark 10-year bond gaining 2
Canadian cents, to yield 1.935 percent.