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* Canadian inflation weaker than expected in July * C$ hits session low of C$0.9902 vs US$, or $1.0099 * 2-year bond yield falls after soft CPI data By Claire Sibonney TORONTO, Aug 17 (Reuters) - Canada's dollar slipped to a session low against its U.S. counterpart on Friday after the country's inflation data came in tamer than expected in July, bolstering expectations the Bank of Canada will leave interest rates at near-record lows well into 2013. Consumers paid less for clothing and fuels such as gasoline and natural gas in the month compared with a year earlier, easing the annual inflation rate to 1.3 percent from 1.5 percent in June. Analysts had expected inflation to be unchanged from June. "Much softer inflationary pressure in Canada than expected, which feeds into Bank of Canada expectations and has kicked off the Canadian dollar from the highs of the day," said Camilla Sutton, chief currency strategist at Scotiabank. Following the release, Canada's dollar fell as low as C$0.9902 to the U.S. dollar, or $1.0099, from around C$0.9890, or $1.0111 immediately before the release. Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders slightly decreased bets on any chance of a rate hike after the inflation data. At 9:09 a.m. (1309 GMT), the Canadian dollar stood at C$0.9893, or $1.0108, down from Thursday's close at C$0.9867, or $1.0135. The currency was already on slightly weaker ground compared to Thursday's finish, as the greenback rebounded from a recent selloff. "The market we're in at the moment seem to be driven very much by U.S. dollar direction," said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets in London. The Canadian dollar also backed off from a record high against the euro hit in the previous session, though it rallied against the Australian dollar on Friday, touching its strongest level since late June. Canadian bond prices picked up and yields fell following the disappointing inflation data. The interest-rate sensitive two-year bond yielded 1.198 percent, from around 1.232 percent before the data. The benchmark 10-year bond was little changed, yielding 1.965 percent.