CANADA FX DEBT-C$ ekes out gain, extending bounce from recent lows

* Canadian dollar at C$1.0977 or 91.10 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 13 (Reuters) - The Canadian dollar firmed
modestly against the greenback on Thursday, building on recent
momentum that has helped the loonie bounce back from a sharp
drop last month that many analysts now say was overdone.
    One of the few domestic economic reports released this week
showed new home prices in Canada rose 0.1 percent in December,
as expected. 
    Data south of the border had more of an impact on the
Canadian dollar, as an unexpected drop in U.S. retail sales for
January pressured the currency earlier in the day before the
loonie was able to push higher. 
    After a sharp sell-off in January that took the Canadian
dollar to 4-1/2-year lows, the currency has bounced back to
recoup about 1 percent since the start of February. 
    "Overall, I think (there is) a little bit more risk-appetite
for the loonie," said Rahim Madhavji, president at in Toronto.
    "People have felt that the U.S. dollar versus the Canadian
dollar somewhat peaked a week or two ago and we're seeing the
loonie have a little bit of momentum."
    The Canadian dollar ended the North American
session at C$1.0977 to the greenback, or 91.10 U.S. cents,
slightly weaker than Wednesday's close of C$1.0997, or 90.93
U.S. cents. The currency has gained in five of its last six
    Nonetheless, the fundamentals that drove the loonie lower at
the start of the year remain in place, particularly a Bank of
Canada that is concerned about the weak inflation environment
and is likely to keep rates low for some time. Most analysts
expect there is more downside in store for the loonie.
    "Certainly things have turned slightly more favorable for
the Canadian dollar in February, but it doesn't erase it," said
Camilla Sutton, chief currency strategist at Scotiabank in
    "The overarching driver of weakness has been the Bank of
Canada, in an environment where inflation data is particularly
    The C$1.0967 mark will be an important technical level, as a
break through that level would suggest an accelerated downside
in the U.S. dollar-Canadian dollar pairing, but a failure to
crack it could provide support, said Sutton.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 3 Canadian cents
to yield 1.019 percent and the benchmark 10-year up
23 Canadian cents to yield 2.460 percent.