CANADA FX DEBT-C$ keeps gains after retail data; bonds down

* C$ rises to 94.42 U.S. cents

* Bonds fall as risk appetite grows

* Canada retail sales gain points to GDP rise (Adds details)

TORONTO, Dec 21 (Reuters) - The Canadian dollar rose against the U.S. currency on Monday as investors' thirst for risk rose along with equity markets and oil prices in thin, pre-holiday trading.

Better than expected domestic retail sales data also helped the Canadian currency retain gains against the greenback, which was rallying against most other major currencies.

Higher auto sales helped push retail trade up by 0.8 percent in October to a level nearly as high as a year earlier, before the sharp declines seen in late 2008, Statistics Canada said. [ID:nN21217072]

At 12:10 p.m. (1710 GMT), the Canadian dollar was at C$1.0591 to the U.S. dollar, or 94.42 U.S. cents, up from Friday's finish at C$1.0660 to the U.S. dollar, or 93.81 U.S. cents. It was off an earlier high at 94.90 U.S. cents.

"The debate continues whether the U.S. dollar is slipping out of its traditional role and into pro-growth mode from a safe-haven currency. I don't think the final word has been said on that subject yet, but for the time being we've seen the U.S. dollar do quite nicely," said Eric Lascelles, chief economics and rates strategist at TD Securities.

"Canada is defying the trend here. The retail sales numbers are helping a little bit."

The price of oil , a key Canadian export, rose towards $74 a barrel, while Toronto's main stock index also rallied. The Canadian dollar also often takes direction from the stock and oil markets as a barometer of risk appetite.

BONDS FALL

Canadian bond prices were lower across the curve as investors found favor with riskier assets such as stocks.

Major North American equity markets were up about 1 percent, bolstered by oil prices and broker upgrades of key issues. [.TO] [STXNEWS/US]

The domestic retail sales data also reinforced expectations of a consumer-led gain in real gross domestic product for October, which would bolster the fourth-quarter reading of growth after Canada barely exited recession in the last quarter.

That would pave the way for eventual rate increases by the Bank of Canada if the strength in the economy is sustained. The central bank has pledged to keep rates low until the end of the first half of 2010.

"Often, with retail sales out of the way, the market can look forward to GDP. It does seem that Canada will get a second positive figure there and in all likelihood hit quite an attractive fourth quarter," said Lascelles.

The two-year government bond fell 6 Canadian cents to C$99.83 to yield 1.339 percent, while the 30-year bond dropped 58 Canadian cents to C$115.72 to yield 4.406 percent.

Canadian bonds outperformed U.S. treasuries, with the 10-year yield spread widening to 16.6 basis points below its U.S. counterpart from 13.9 basis points the previous session. (Reporting by Ka Yan Ng; editing by Rob Wilson)