CANADA FX DEBT-Loonie pares weekly gain as soft data lifts rate cut bets

 (Adds details throughout and updates prices)
    * Loonie weakens 0.3% against the greenback
    * Canadian retail sales decrease by 1.2% in October
    * Loonie ends week up 0.1%
    * Canadian bond prices rise across the yield curve

    By Fergal Smith
    TORONTO, Dec 20 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Friday, giving up much of this
week's gains after domestic data showing a surprise decline in
retail sales revived bets for a Bank of Canada interest rate cut
next year.
    Canadian retail sales dropped by 1.2% in October, including
lower sales of motor vehicles and parts, Statistics Canada said.
Analysts had forecast a 0.5% increase.             
    "With the exception of housing markets, Canadian economic
releases in the past few weeks have been unambiguously
negative," Omar Abdelrahman, an economist at TD Economics, said
in a note. "This one is no different. As a result, we are
expecting a continued tepid performance for the Canadian economy
in the fourth quarter."
    Chances of a rate cut over the coming year, which had
dwindled in recent weeks, jumped to nearly 50% from about 25%
before the retail sales report, the overnight index swaps market
    Separate data showed that new-home prices fell 0.1% in
November after rising 0.1% in October.             
    At 2:34 p.m. (1934 GMT), the Canadian dollar          was
trading 0.3% lower at 1.3159 to the greenback, or 75.99 U.S.
cents. The currency, which notched on Wednesday a seven-week
high at 1.3103, traded in a range of 1.3123 to 1.3181.
    For the week, the loonie was up 0.1% after a boost from data
showing higher Canadian underlying inflation and a trade deal
between the United States and China.
    Canada is a major exporter of commodities, including oil, so
its economy could benefit from an improved outlook for global
    U.S. crude oil futures        settled 1.2% lower at $60.44 a
barrel on Friday but were still up for the third straight week
after easing U.S.-Chinese trade tensions lifted business
confidence and the outlook for global economic growth. 
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 6.5 Canadian cents to
yield 1.662% and the 10-year             rising 36 Canadian
cents to yield 1.620%.
    The gap between Canada's 10-year yield and its U.S.
counterpart widened by 5.2 basis points to a spread of 29.9
basis points in favor of the U.S. bond.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky and Will