TORONTO (Dow Jones)--The Canadian dollar pared its modest gains against the U.S. dollar Tuesday morning, after disappointing U.S. retail sales data dimmed hopes for a smooth-sailing U.S. recovery. The U.S. consumer is considered essential to achieving a full economic recovery in the U.S., Canada's major trading partner. The U.S. dollar was at C$0.9866 Tuesday morning, from C$0.9888 late Monday, according to data provider CQG. It slipped to a session low of C$0.9847 overnight, then continued to wander in a slim, half-cent range. With volatility low by historical standards. traders expect the U.S. dollar to remain locked between C$0.9830 and C$0.9900. "If 2010 was the year of unusually narrow range trading in funds, 2011 is shaping up to be even tighter," TD Securities said Tuesday. "We doubt this situation can last." Typically, such confined ranges are followed by "a much more volatile and dynamic phase of market movement," TD said, adding that at least, for now the range "looks set to hold." The Canadian dollar, meanwhile is making more dramatic moves along the crosses, currencies other than the U.S. dollar. It has gained some upward momentum against the Japanese yen, and was recently trading at Y84.87, a level not seen since August 5. It earlier touched a high of Y85.13. The euro has traded in a choppier fashion in recent sessions, however. Early Tuesday, the euro was at C$1.3345, from C$1.3331 late Monday. TD said the common currency appears "poised to recover a little of last week's sharp slide in the short-run, even if the bigger picture trend here remains lower." In U.S. data Tuesday, U.S. retail sales rose in January for the seventh straight month, but the increase was smaller than expected. U.S. import prices, meanwhile, rose much more than expected in January as costs increased for energy, food, and industrial supplies. And New York manufacturing activity continued to expand in February but price pressures rose, further squeezing profit margins, according to the Federal Reserve Bank of New York's Empire State Manufacturing Survey. In data overnight, data from China showed the country's consumer prices rose 4.9% in January from a year earlier, while new loans for the month lagged market expectations and were down from a year earlier, indicating inflation pressures remain even as Beijing's policy tightening has had modest success. U.K. consumer prices rose at double the Bank of England's target rate in January. But BOE Governor Mervyn King said the Monetary Policy Committee's "central view" is that the annual rate of inflation in the U.K. will fall back to its 2.0% target if interest rates rise as investors expect. Gross domestic product in the euro zone expanded by 0.3% in the fourth quarter of 2010 compared to the preceding quarter. And, Germany's ZEW indicator of economic sentiment edged higher in February, suggesting market participants are still confident about the recovery in Europe's biggest economy. There are no major Canadian data releases on the calendar for Tuesday. Later in the week, Canada will see leading indicators, international securities transactions, wholesale sales and the most significant data point of the week, consumer price index. - By Karen Johnson, Dow Jones Newswires; 416-306-2022; karen.johnson@dowjones.com

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