* C$ heads higher to $1.0169
* Bonds edge up across the curve
* Annual inflation rate 2.3 pct vs 2.4 pct in December
* Bank of Canada under no pressure to raise rates in March
By Ka Yan Ng
TORONTO, Feb 18 (Reuters) - The Canadian dollar steadied against the U.S. dollar after a brief spike higher on Friday morning on data that showed Canada's annual inflation rate eased.
Short-term government bonds prices ticked higher after the data suggested that the Bank of Canada was under no immediate pressure to hike interest rates sooner than expected.
Canada's annual inflation rate slipped to 2.3 percent in January from 2.4 percent in December as energy price increases eased, Statistics Canada said. For details, see [ID:nSCLIDE79I] [ID:nN18248663]
The year-on-year core rate, which is closely watched by the Bank of Canada, slipped to 1.4 percent from 1.5 percent in December.
The currency had firmed after the figures to as high as to C$0.9825 to the U.S. dollar, or $1.0178 -- not far off the near-three year high hit on Thursday -- from about C$0.9842 to the U.S. dollar, or $1.0161, just ahead of the data publication.
But it quickly pared gains and by 7:45 a.m. (1245 GMT), the Canadian dollar CAD=D4 was at C$0.9834 to the U.S. dollar, or $1.0169, up from Thursday's North American session close of C$0.9849 to the U.S. dollar, or $1.0153.
"Given that it was within spitting distance of consensus, I don't think there's too much here to drive the market one way or the other," said David Tulk, chief Canada macro strategist at TD Securities.
"We could see central bank expectations for hikes maybe pushed back just a little bit, maybe a tiny bit of a bid in the two-year (government of Canada bond) but we've noticed that the market has been reluctant to rally on softer data so any move will be fairly minor."
Friday's figures do little to challenge market expectations that the central bank, which targets 2 percent inflation, will hold rates steady until at least May.
Overnight index swaps, which trade based on expectations for the key central bank rate, showed investors see a 99.59 percent probability rates will stay on hold March 1, little changed from before the data. BOCWATCH
Canadian bond prices were higher across the curve, with the interest-rate sensitive two-year Canadian government bond CA2YT=RR up 5 Canadian cents to yield 1.883 percent, while the 10-year bond CA10YT=RR advanced 13 Canadian cents to yield 3.468 percent.
With no other data due on Friday, the market's focus now turns to the Group of 20 financial leaders meeting in Paris, where the world's major economies were split over how to measure imbalances in the global economy in a bid to avert future financial crises. For details, see [ID:nLDE71D100] (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)