CANADA FX DEBT-C$ hits 4-month low on euro zone fears

* Ends at C$1.0208 vs US$; down 1.8 pct for the week
    * Hits low of C$1.0227 vs US$, weakest since Jan. 16
    * Bond prices ease; 30-yr yield still near record low
    * Canada annualized inflation rate hits 2.0 pct in April

    By Claire Sibonney and Jennifer Kwan	
    TORONTO, May 18 (Reuters) - The Canadian dollar hit a
four-month low against its U.S. counterpart on Friday and fell
for a fifth straight session, as surprisingly high domestic
inflation data failed to shift investor focus away from Europe's
deepening debt crisis.	
    The currency's move lower tracked broader risk aversion as
overseas stocks erased this year's gains a day after Moody's cut
its rating on Spanish banks en masse, heightening fears of
contagion from the Greek political crisis. 
    "The lack of sustained response to the
stronger-than-expected inflation speaks to a universal focus on
all things euro zone," said David Tulk, chief Canada macro
strategist at TD Securities.	
    Weakness in the Canadian dollar mirrored the performance of
U.S. equities, w hich also lost ground as Facebook Inc 
made a modest market debut. [ .N]	
    Looking ahead, investors will pay attention to an emergency
meeting of G8 leaders on the weekend, before a Canadian market
holiday on Monday. 	
    "We'll see if there are any headlines over the weekend but
we don't have a tremendous amount of optimism for any cathartic
rally," added Tulk.	
    The Canadian dollar ended at C$1.0208 versus the U.S.
dollar, or 97.96 U.S. cents, down from T hursday's North American
session close at C$1.0191 versus the U.S. dollar, or 98.13 U.S.
cents. For the week, the currency shed around 1.8 percent.	
    Overnight, the currency dropped as low as C$1.0227, or 97.78
U.S. cents, its weakest since Jan. 16.	
    Jeremy Stretch, head of currency strategy at CIBC in London,
 saw the next near-term support level for the Canadian currency
around C$1.0280.	
    Canada's dollar underperformed against most major
currencies, though it made gains against commodity-linked peers
like the New Zealand and Australian dollars and
Brazil real.	
    Earlier in the session, the Canadian dollar had
benefited from domestic data which showed that on an annual
basis, the overall inflation rate rose to 2.0 percent in April
from 1.9 percent in March.	
    The core rate, which excludes volatile items and is closely
watched by the Bank of Canada, climbed to 2.1 percent from 1.9
    The report provided the Bank of Canada with more reason, if
the European crisis doesn't undermine the economy, to launch the
interest-rate hike it has hinted at recently. 	
    The Bank of Canada surprised the market in April with a more
bullish economic forecast and signaled it was starting to think
more seriously about tightening monetary policy. But the latest
leg of the European crisis dampened expectations of a move.	
    Following the release, traders raised bets on an interest
rate increase by the Bank of Canada later this year. They soon
reversed them as the global market situation worsened.
    "From a strictly domestic standpoint, I think it does
advance the case for the bank raising rates. Having said that,
the bank also has to, of course, deal with the reality of a
further flare up in the European situation, and I think that's
going to overwhelm domestic considerations," said Doug Porter,
deputy chief economist at BMO Capital Markets.	
    Canadian government bonds prices were mostly lower across
the curve, l argely taking t heir cue from easing U.S. Treasury
prices. The Canadian bond market closed at 1 p.m. (1700 GMT)
ahead of the long weekend. 	
    Analysts said many investors sold to lock in profits a day
after benchmark yields traded at or near record lows. Canada's
30-year government bond yield hit a record low 2.408
percent on Thursday.	
    Canada's two-year Canadian government bond was
down h alf a Canadian cent to yield 1.219 percent, while 	
the benchmark 10-year bond was down 15 Canadian
cents to yield 1.897 p ercent. 	
    The 30-year bond shed 3 Canadian cents to yield
2.42 percent.