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Canadian dollar gains 0.6% against the greenback

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For the week, the loonie weakens 0.3%

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Flash estimate shows retail sales up 0.7% in April

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Canadian bond yields trade mixed across the curve

By Fergal Smith

TORONTO, May 24 (Reuters) - The Canadian dollar

strengthened against its U.S. counterpart on Friday, clawing

back much of its weekly decline, as investor sentiment picked up

and preliminary domestic data showed retail sales rebounding in

April.

The loonie was trading 0.6% higher at 1.3650 to the

U.S. dollar, or 73.26 U.S. cents, a day after it touched a

two-week low intraday at 1.3743. For the week, it was down 0.3%.

The currency rose as a University of Michigan survey showed

consumers' inflation expectations improved in late May, boosting

prospects the Federal Reserve would begin easing policy by

September.

"It just seems like the minute that there's something weaker

than expected, the market wants to front-run a Fed turn," said

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

Silver Gold Bull.

Wall Street stocks rallied and the price of oil, one of

Canada's major exports, rose after four straight days of

declines. U.S. crude oil futures were up 1.2% at $77.79 a

barrel.

"This is going to be a bullish close for CAD today. I

wouldn't be surprised if it starts next week a little stronger,"

Bregar said.

Canadian retail sales contracted for a third consecutive

month in March, falling 0.2%, underscoring the impact of high

interest rates on consumer spending. Still, a preliminary

estimate of April's sales figure showed sales were likely to

increase by 0.7%.

On Tuesday, data showed Canada's annual inflation rate

falling to a three-year low of 2.7% in April, raising

expectations the Bank of Canada would begin cutting rates at its

next policy decision on June 5. Swap markets see a 60% chance of

a June cut.

Canadian government bond yields were mixed across a more

deeply inverted curve, with the 2-year rising 3.1 basis points

to 4.248%.