CANADA FX DEBT-C$ hits 3-week low as soft inflation revives rate cut threat

* Canadian dollar at $1.3491, or 74.12 U.S. cents
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, Dec 22 (Reuters) - The Canadian dollar tumbled to a
three-week low against its U.S. counterpart on Thursday,
pressured by domestic inflation data that reminded the market of
the risk of further interest rate cuts from the Bank of Canada.
    Canada's annual inflation slowed in November to 1.2 percent
from a rate of 1.5 percent in October, with prices for food and
clothing declining, Statistics Canada said. 
    The central bank's new measures for core inflation also
weakened, and the report eclipsed data showing a much
stronger-than-expected rise of 1.1 percent in Canadian retail
sales for October. 
    "To the extent that a (Bank of Canada interest) rate cut was
discussed in October, I don't think today's numbers rule that
out," said Desjardins Senior Economist Jimmy Jean.
    The recent fall in Canada's bond yields below U.S.
Treasuries has weighed on the loonie as investors brace for
divergence in monetary policy between the Federal Reserve and
the Bank of Canada.
    Canada's central bank last cut in July 2015 to leave its
policy rate at 0.50 percent.
    At 9:44 a.m. EST (1444 GMT), the Canadian dollar 
was trading at C$1.3491 to the greenback, or 74.12 U.S. cents,
weaker than Thursday's close of C$1.3407, or 74.59 U.S. cents.
    The loonie's strongest level of the session was C$1.3414,
while it touched its weakest since Nov. 28 at C$1.3520.
    U.S. President-elect Donald Trump named Peter Navarro, an
economist who has urged a hard line on trade with China, to head
a newly formed White House National Trade Council, the
transition team said on Wednesday. 
    Trump has also vowed to renegotiate the North American Free
Trade Agreement with Canada and Mexico, saying it had cost
Americans jobs. Economists worry that an uncertain outlook for
trade deals will derail an expected pickup in Canada's business
    U.S. crude prices were up 0.50 percent at $52.75 a
barrel despite an unexpected rise in U.S. crude inventories last
week and moves by Libya to boost output over the next few
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries.
    The two-year fell 1.5 Canadian cents to yield
0.84 percent, and the benchmark 10-year declined 16
Canadian cents to yield 1.822 percent.
    One week ago, the 10-year yield touched its highest since
June 2015 at 1.859 percent.
    Canada's gross domestic product data for October is due on

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn)