TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Friday, but was on track to end a volatile week slightly higher as global equity markets rose and a preliminary estimate showed Canadian retail sales recovering in June.

The loonie weakened 0.1% to 1.2582 per greenback, or 79.48 U.S. cents. Since the start of the week, the Canadian currency has gained 0.2%, after three weekly declines.

It was pressured earlier in the week by worries that the Delta variant of the coronavirus would impede the global economic recovery. On Monday, it hit a five-month low of 1.2807.

World stocks rose as a survey showed business activity in the euro zone expanded in July at its fastest monthly pace in over two decades, while oil, one of Canada's major exports, fell 0.6% to $71.46 a barrel.

Still, oil was on track to end the week little changed after a surprising recovery from Monday's slide, underpinned by expectations that supply will remain tight as demand recovers.

Canadian retail sales dropped 2.1% in May from April, Statistics Canada said, less than a 3.0% decline forecast by analysts. A flash estimate for June showed a gain of 4.4% as businesses forced to shut down amid a potent third wave of COVID-19 infections began to reopen.

Last week, the Bank of Canada took a mostly optimistic stance on the country's economy as it cut the pace of bond purchases to C$2 billion per week.

Yields on Canadian government bonds were higher across the curve on Friday as U.S. Treasury yields climbed. The 10-year rose 1.3 basis points to 1.217%, after hitting a five-month low of 1.104% on Tuesday.

(Reporting by Fergal Smith; Editing by Paul Simao)