* Central bank holds benchmark rate steady at 1.0 pct
* Repeats that rates could go up or down, depending on data
* Says risk of weak inflation remains
* Outlook for inflation, growth largely unchanged
* Sees soft landing in housing market
By Louise Egan and David Ljunggren
OTTAWA, March 5 (Reuters) - The Bank of Canada continued to express concerns about weak inflation on Wednesday, even after consumer prices picked up markedly in January, and repeated that its next move on interest rates could be either up or down.
The central bank left its benchmark interest rate unchanged at 1.0 percent, as expected, extending a freeze that has lasted more than three years. Analysts do not expect the bank to move on rates until the third quarter of next year.
But the bank's views on inflation and the economy led to a firming of the Canadian dollar, although analysts said there was no significant shift in the bank's stance.
Even though the January inflation reading of 1.5 percent was higher than expected, the bank maintained its view, outlined in a report in January, that overall and core inflation would remain well below its 2 percent target throughout 2014, and rise to 2 percent in about two years.
"With inflation expected to be well below target for some time, the downside risks to inflation remain important," the bank said in a statement.
"The timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks," it said, using language identical to its last rate announcement on Jan. 22.
The bank targets 2 percent inflation, the midpoint of a 1 to 3 percent range, and has been worried that low prices may reflect weak demand and intense retail competition. Policymakers in the United States and Europe have also been grappling with disinflation.
Doug Porter, chief economist at BMO Capital Markets, said the bank was "fine-tuning" its message but not signaling any major change in its outlook.
"For a change, they haven't turned the screw again towards the dovish side," he said.
The Canadian dollar held stronger against the U.S. dollar after the statement.
The currency was at C$1.1048 to the greenback, or 90.51 U.S. cents, stronger than Tuesday's close of C$1.1100, or 90.09 U.S. cents.
Yields on overnight index swaps, which trade based on expectations for the policy rate, showed traders' expectations were little changed. They are pricing in a very small chance of a rate cut later this year.
The bank's tone was largely unchanged from January, when Governor Stephen Poloz said the door was "slightly more open to a rate cut" than before, although he described the bank's overall stance as neutral.
Some market players had expected Poloz to sound less dovish after saying on Feb. 22 that he was feeling "a little more comfortable" about the latest inflation data. [ID: nL2N0LR07Z]
Those remarks had led market players to pare back their bets of a rate cut.
The bank said on Wednesday it still expects underlying economic growth of about 2.5 percent this year despite a stronger-than-expected performance in 2013, saying the first quarter is "likely to be softer".
Statistics Canada reported that the economy expanded by 2.9 percent, annualized, in the fourth quarter and made upward revisions to its figures for growth in the first two quarters of the 2013, indicating the economy had done better than the Bank of Canada realized.
Still, the economy shrank in December, battered by severe weather, and apart from a surge in job creation in January, there has not yet been enough evidence for anyone to declare the economy has rebounded.
The bank wants to see growth powered by exports and business investment, which have taken a backseat to consumers since the 2008-09 recession. But that rebalancing of the economy is still elusive, it said.
The recent data support its view that there will be a soft landing in the Canadian housing market and the record-high household debt-to-income ratio will stabilize, the bank said.
Economists say the bank may wait until after the traditionally busy spring season in the housing market before updating its outlook.
"The way the bank has teed it up, I think they're saying to markets that we're going to take until probably at least mid-year before we more seriously contemplate any stronger steps in either direction on (rates)," said Derek Holt, vice president of economics at Scotiabank.
The bank statement made no mention of the Canadian dollar, which has dipped in value against its U.S. counterpart in recent months.
In its Jan. 22 rate statement, the bank said strong U.S. demand and the recent depreciation of the Canadian dollar should help to boost exports, business confidence and investment.