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CANADA FX DEBT-C$ retreats from near 2-week high as manufacturing disappoints

* Canadian dollar at C$1.2635, or 79.15 U.S. cents

* Loonie touches its strongest since Aug. 4 at C$1.2588

* Bond prices dip across steeper yield curve

TORONTO, Aug 17 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Thursday, pulling back from a nearly two-week high earlier in the day as oil prices slipped and domestic manufacturing data fell more than expected. Canadian factory sales were down by 1.8 percent in June from May, with declines for petroleum and coal products, transportation equipment, and chemical industries, Statistics Canada said. Analysts had forecast a decrease of 1.0 percent.

The price of oil, one of Canada's major exports, fell after U.S. data showed crude output there had jumped to its highest in more than two years.

U.S. crude prices were down 0.56 percent at $46.52 a

barrel.

At 9:31 a.m. ET (1331 GMT), the Canadian dollar was

down 0.1 percent at C$1.2635 to the greenback, or 79.15 U.S. cents. The currency's weakest level of the session was C$1.2647, while it touched its strongest since Aug. 4 at C$1.2588. On Wednesday, the loonie rallied more than 1 percent as U.S. Federal Reserve concerns over inflation and the disbanding of U.S. President Donald Trump's manufacturing council and strategic policy forum weighed on the greenback.

The U.S. dollar rebounded across the board on

Thursday, reserving some of its strongest gains against the euro after minutes of the July meeting by the European Central Bank prompted investors to cover bearish bets against the greenback.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year fell 3 Canadian cents to yield 1.248 percent, and the

10-year declined 21 Canadian cents to yield 1.896

percent. Canada's closely watched inflation data for July is due on Friday.

(Reporting by Fergal Smith; Editing by Lisa Von Ahn)