* C$ at C$1.0208 vs US$, or 97.96 U.S. cents * C$ touches C$1.0256, or 97.50 U.S. cents, lowest since June 2012 * Canada January inflation lowest in more than 3 years * Largest drop in retail sales in nearly three years in December * Bond yields fall across curve By Solarina Ho TORONTO, Feb 22 (Reuters) - The Canadian dollar touched its weakest level against the U.S. currency in almost eight months on Friday, after weaker-than-forecast inflation and retail sales data reduced the likelihood that the Bank of Canada will raise interest rates this year. Canada's economy registered its lowest inflation in more than three years in January and the largest decline in retail sales in almost three years in December, a double whammy that weakened the currency and darkened the country's growth outlook. "Given that, the move in the currency was justified. As the day wore on, you got a little bit of an updraft as equity markets improved. Overall though, I think there's more serious threat from further weaker domestic data," said Mark Chandler, head of Canadian fixed income-and currency strategy at RBC Capital Markets. The data suggested that already moderate expectations for fourth-quarter growth might be too optimistic and that the Bank of Canada is under no pressure to raise interest rates. "Basically this combination of data just piles on what had already been a weak footing for the Canadian dollar," said Doug Porter, chief economist at BMO Capital Markets. Friday's dismal numbers, along with other unexpectedly weak economic data over the past two weeks have spurred a third of Canada's primary dealers to push back their forecasts for when the Bank of Canada will next raise rates, according to a Reuters poll on Friday. The Canadian dollar finished Friday's North American session at C$1.0208 against the greenback, or 97.96 U.S. cents, after touching C$1.0256, or 97.50 U.S. cents, its weakest level since late June, 2012. It was softer than Thursday's close at C$1.0187, or 98.16 U.S. cents. It was also underperforming against most major currencies, including the Australian dollar -its commodities-linked counterpart - where it touched its weakest level in nearly seven months. A slew of data next week, including fourth-quarter GDP data is expected to keep the currency under pressure. "I don't see anything around the corner that's going to provide much in the way of relief," said Chandler. David Bradley, director of foreign exchange trading at Scotiabank, said the currency could trade as weak as C$1.0350 in the near term. Government bond prices, meanwhile, rose across the curve. The price of a two-year Canadian government bond climbed after the data, to 7 Canadian cents, yielding 1.071 percent, while the benchmark 10-year bond climbed 33 Canadian cents, yielding 1.946 percent. Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that after the data traders eliminated already small bets on a rate increase in late 2013.