CANADA FX DEBT-C$ firms on better Europe outlook

* C$ at C$0.9916 vs US$, or $1.0083
    * German data lifts market
    * Soft Canadian inflation data weighs
    * IMF moves to boost euro zone funding
    * Bonds prices mostly lower

    By Jon Cook	
    TORONTO, April 20 (Reuters) - Canada's dollar strengthened
against its U.S. counterpart on Friday as positive developments
in Europe eased concerns of an escalation of the region's debt
crisis and helped the currency shrug off soft domestic inflation
    Canada's annual inflation rate dipped to 1.9 percent in
March from 2.6 percent in February, largely due to slower
year-over-year increases in prices for food and energy,
Statistics Canada said on Friday. 	
    March's rate was slightly below the 2.0 percent forecast by
market operators, who said it was unlikely to put any immediate
pressure on the Bank of Canada to raise interest rates, which
are currently very low.	
    "This really shouldn't have a material impact on markets
because it's mostly about a high number dropping out from a year
ago that caused the year-over-year rate to see such a steep
decline," said Avery Shenfeld, chief economist at CIBC World
    "The Bank of Canada's warning about a rate hike is more
about its expectations that the economy will grow fast enough to
create a potential inflation risk in 2013 rather than any
immediate inflation pressures," added Avery. 	
    The Canadian dollar sagged to around C$0.9925 against the
greenback, or $1.0076, a hair weaker than C$0.9912 just before
the release of the report.	
    The currency had strengthened against the greenback
overnight after a better-than-expected German business sentiment
survey on Friday unexpectedly climbed for the sixth month in a
row in April, defying expectations for a fall. 
    "News overnight has been a bit encouraging for risk assets,"
said Shaun Osborne, chief currency strategist at TD Securities.
"We're seeing commodity prices, equity markets generally rally."	
    Oil rose to $119 a barrel on Friday, trimming its decline
this week and gold and metals prices were also higher as the
euro firmed against the U.S. dollar.   	
    At around 9:51 a.m. (1351 GMT), the Canadian dollar 
was at C$0.9916 against the greenback, or $1.0083, up from its
Thursday finish at C$0.9952 against the U.S. dollar, or $1.0048.	
    Concerns about the euro zone's financial stability has
pressured the Canadian currency, chipping away at sharp gains 
earlier in the week after the Bank of Canada surprised the
market with a more bullish economic forecast and signaled it was
starting to think more seriously about tightening monetary
    The more hawkish central bank outlook has prompted several
of the country's primary dealers to pull forward their forecasts
for an interest rate hike, according to a Reuters poll, with the
central bank now expected to tighten policy early next year.
    On Wednesday Governor Mark Carney said the euro zone debt
crisis was "still the biggest downside risk, external downside
risk" to the Canadian economy. 	
    That risk was alleviated a bit on Friday as the Group of 20
nations stood ready to commit at least $400 billion to bulk up
the International Monetary Fund.  	
    Canadian government bond prices were mostly lower. The
two-year bond shed 3 Canadian cents to yield 1.352
percent. The benchmark 10-year bond was down 25
Canadian cents to yield 2.076 percent.