* C$ at C$0.9915 vs US$, or $1.0086 * U.S. CPI data helps boost C$ * Cdn factory data weighs * Bond prices mostly lower By Jon Cook TORONTO, March 16 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Friday, helped by data that showed U.S. inflation remained in check last month, which offset a report showing weakness in the Canadian manufacturing sector. U.S. consumer prices rose by the most in 10 months in February as the cost of gasoline spiked, a government report showed on Friday, but there was little sign that underlying inflation pressures were building up. The data was seen reducing the likelihood of the U.S. Federal Reserve tightening monetary policy sooner than had been anticipated, weakening the greenback against a range of currencies. The Canadian dollar turned positive and touched a session high at C$0.9901 versus the U.S. dollar, or $1.01 following the CPI data. "We're having a significant weakening move in the U.S. dollar," said Camilla Sutton, chief currency strategist at Scotia Capital. "We had a big spike higher in the euro and a decent spike higher in the Canadian dollar." At around 10:52 a.m. (1452 GMT), the Canadian dollar stood at C$0.9915 versus the U.S. dollar, or $1.0086, compared with Thursday's North American close at C$0.9922 versus the U.S. currency, or $1.0079. The Canadian dollar pared some gains after the Thomson Reuters/University of Michigan's U.S. consumer sentiment gauge slipped to 74.3 from 75.3 in February, shy of economists' forecasts for a gain to 76.0. In Canada, manufacturing sales unexpectedly fell in January, dragged down largely by the aerospace sector even while sales from auto assembly plants rose to their highest level since November 2007, Statistics Canada said on Friday. However, appetite for riskier and growth-oriented assets remained strong, reflected by this week's large sell-off of Canadian government bonds and U.S. Treasuries that has been driven by expectations for stronger growth in the U.S. economy. The encouraging U.S. data has also prompted traders to increase bets on the possibility of a Bank of Canada rate hike in December. The Canadian central bank's target for the overnight rate - its main policy tool - has been at 1 percent since 2010. In a Reuters poll last month, economists predicted the central bank would keep rates on hold until the second quarter of 2013. "Most of the news has been positive, so we now have the market pricing in almost a 50-percent chance of a Bank of Canada interest rate hike this year," said Sutton. Canadian government bond prices fell again on Friday as risk sentiment improved and investors bought up more equities, forcing yields above Thursday's yearly highs. The two-year bond was down 4 Canadian cents to yield 1.296 percent, reaching the highest level since August. The 10-year bond dropped 46 Canadian cents to yield 2.257 percent. The yield touched 2.301, its highest level since November.