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Canadian dollar gains 0.3% against the greenback

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For the week, the loonie advances 0.3%

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Factory sales fall 2.1% in June

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Bond yields edge lower across the curve

By Fergal Smith

TORONTO, Aug 16 (Reuters) - The Canadian dollar

strengthened against its U.S. counterpart on Friday as equity

markets held on to recent gains and ahead of domestic inflation

data in the coming week that could guide expectations for Bank

of Canada interest rate cuts.

The loonie was trading 0.3% higher at 1.3692 per U.S.

dollar, or 73.04 U.S. cents. For the week, the currency was also

up 0.3%, adding to the previous week's gains.

"A decent finish to the week for the Canadian dollar," said

Erik Bregar, director, FX & precious metals risk management at

Silver Gold Bull. "I think the ability for equities to shrug off

this morning's mildly hawkish-looking Michigan sentiment and

inflation expectation readings has helped."

The University of Michigan's preliminary reading on the

overall index of consumer sentiment rose in August, while

inflation expectations remained unchanged over the next year and

beyond.

Wall Street's main indexes were on course for their best

weekly performance this year as better-than-expected data calmed

nerves over a recession.

"Zooming out, the prospects for CAD continue to look good

following last week's bullish weekly reversal pattern on the

charts," Bregar said.

The currency has rebounded after tumbling on Aug. 5 to its

weakest level in nearly two years at 1.3946 when financial

market volatility globally soared.

Domestic data was mixed. Factory sales fell 2.1%

month-over-month in June, while housing starts jumped 16% in

July.

The Canadian consumer price index report for July, due on

Tuesday, is expected to show inflation slowing to 2.4% from 2.7%

in June. The BoC has said it is likely to continue to lower

interest rates if inflation cools in line with forecasts.

Canadian bond yields edged lower across the curve, with the

10-year down half a basis point at 3.074%.