* C$ touches 5-week high at C$1.2192, or 82.02 U.S. cents
* Bonds a little lower after Wednesday's surge
* Annual inflation rate surged unexpectedly in February (Updates to close)
By Ka Yan Ng
TORONTO, March 19 (Reuters) - The Canadian dollar climbed on Thursday as risk appetite increased in the wake of the U.S. Federal Reserve's plan to buy up longer-term government debt.
The currency finished at C$1.2377 to the U.S. dollar, or 80.80 U.S. cents, up from Wednesday's close of C$1.2463 to the U.S. dollar, or 80.24 U.S. cents.
The Canadian dollar shot as high as C$1.2192, or 82.02 U.S. cents, its highest level since Feb. 10, shortly after Statistics Canada said annual inflation jumped to 1.4 percent in February from 1.1 percent in January. [ID:nN19500487]
The currency's jump was encouraged by short-lived sentiment that inflation concerns would make the Bank of Canada less likely to ease monetary policy further.
But economists said the rise in inflation would likely be temporary and would do little to take the central bank's focus away from an economy in full recession.
"There's nothing really in the backdrop which seems consistent with dollar/Canada at C$1.22," said David Watt, senior currency strategist at RBC Capital Markets.
The currency should only be seeing "modest gains because the backdrop is not all that favorable for the Canadian dollar," he added. "I think the inflation numbers were a bit of a head fake overall."
The gains that the currency sustained on Thursday stemmed from the Fed's Wednesday announcement that it would inject an additional $1 trillion into the U.S. economy, partly by buying government bonds [ID:nN18343369], a move that weakened the U.S. dollar.
The Fed's plans also gave increased chances that the Bank of Canada may follow suit with its own program of pumping money directly into the economy. [ID:nN19442410]
Higher oil prices and an eighth consecutive higher close on Toronto's main stock index were also factors that helped the Canadian dollar rise.
The currency moved in a C$1.23-C$1.24 range from midday to the close, a trading range that has slowly crept higher since the currency hit a 4-1/2 year low earlier this month.
Increasing risk appetite has been the main cause behind the Canadian dollar's rally despite a string of weak Canadian economic data.
Canadian bond prices were mostly lower on Thursday as investors handed back a small portion of the surge prompted by the Fed's unexpected move on Wednesday.
Second thoughts about the Fed's plans put a less ebullient mood on bond prices as investors tried to gauge the impact of the plan's details.
The two-year bond fell 6 Canadian cents to C$102.94 to yield 0.998 percent. The 10-year bond was the sole riser on the curve, up 5 Canadian cents at C$109.30 to yield 2.699 percent.
The 30-year bond fell 35 Canadian cents to C$125.45 to yield 3.562 percent. The U.S. 30-year bond yielded 3.627 percent.
Canada bonds outperformed U.S. Treasuries across the curve, with the 30-year yield 6.5 basis points below its U.S. counterpart. On Wednesday, the Canadian 30-year yield was 0.3 basis points above the U.S. yield. (Additional reporting by Jennifer Kwan; Editing by Peter Galloway)