* Canadian dollar off 0.7 pct on week
* Bond prices climb with U.S. Treasuries
* Primary dealers expect rate increase in Q3 2012
* Domestic inflation rate up a notch in Feb
By Claire Sibonney
TORONTO, March 23 (Reuters) - The Canadian dollar eked out a small gain against the U.S. dollar on Friday, reversing earlier losses as it tracked a broad rebound in the euro, world stocks and commodities such as oil.
Investors appeared to set aside concerns about global growth and largely ignored domestic inflation data.
“There were a lot of conflicting issues going on for CAD today,” said Camilla Sutton, chief currency strategist at Scotia Capital.
“Excluding CPI today, the data for Canada has been disappointing and there’s a tremendous amount of worry about what’s transpiring in China.”
Data that showed Canada’s annual inflation rate rose a notch in February failed to have much of an impact on the currency earlier in the day as it see-sawed in reaction to other market moves, namely the direction of the euro.
Annual inflation hit 2.6 percent in the month, up from 2.5 percent in January but the level is still not seen high enough to cause the central bank major discomfort as it keeps interest rates near the record lows seen during the worst of the recession.
In a poll conducted on Friday, most of Canada’s primary dealers still expect the Bank of Canada to keep interest rates steady until the third quarter of 2013 as global growth remains subdued, though the bias is shifting to a rate hike sooner rather than later.
“Interest rates being bullish for the Canadian dollar has really just been an factor an offsetting factor to some of the other data that’s been bearish so we’re ending up in this very tight range because the drivers are moving in different directions which is making it quite confusing,” added Sutton.
The Canadian dollar ended the North American session at C$0.9987 against the U.S. currency, or $1.0013, up slightly from Thursday’s North American session close at C$0.9997 versus the U.S. dollar, or $1.0003. The Canadian dollar was down 0.7 percent for the week.
Despite the U.S. dollar’s weakness, North American currencies garnered support from an improving economic landscape in the United States that contrasts starkly with other countries across the Atlantic that are teetering on the brink of recession or actually in one.
New U.S. home sales data on Friday backed the view the housing sector is on a stable path to recovery.
Sutton said she expect Canada’s currency to stick within its tiny recent range between C$0.9850-C$1.0050 versus the greenback in the short term.
Looking to next week, markets will be paying close attention to U.S. housing data and Canada’s federal budget.
Canadian bond prices followed U.S. Treasuries higher across the curve, even as equity prices advanced, reversing more of last week’s losses as concerns about global growth competed with improved U.S. data for investors’ attention.
The two-year bond, which is especially sensitive to Bank of Canada interest rate moves, was up 2 Canadian cents to yield 1.237 percent. The 10-year bond climbed 12 Canadian cents to yield 2.186. percent.