CANADA FX DEBT-C$ firms after inflation cools less than expected

    * Canadian dollar at C$1.2695, or 78.77 U.S. cents
    * Canada's inflation rate pulls back to 1.7 percent
    * Bond prices mixed across a flatter yield curve

    By Fergal Smith
    TORONTO, Feb 23 (Reuters) - The Canadian dollar edged higher
against its broadly firmer U.S. counterpart on Friday after data
showed Canada's inflation cooled less than economists had
    At 9:51 a.m. EST (1451 GMT), the Canadian dollar         
was trading 0.1 percent higher at C$1.2695 to the greenback, or
78.77 U.S. cents.
    The currency traded in a range of C$1.2614 to C$1.2726.
    The annual inflation rate pulled back to 1.7 percent in
January, above economists' forecasts for 1.4 percent, as
consumers paid less for gasoline and vehicles, data from
Statistics Canada showed. Underlying inflation firmed.
    The data may not have much impact on the Bank of Canada's
interest rate outlook after inflation was boosted by a minimum
wage hike in Ontario, Canada's most populous province.
    "I would think the BoC looks through this minimum wage pass
through effect as a transitory driver," said Derek Holt, head of
capital markets economics at Scotiabank.
    Chances of another rate hike in March stayed at less than 10
percent, data from the overnight index swaps market showed.
    The central bank lifted rates in January for the third time
since July. Its benchmark rate sits at 1.25 percent.
    The U.S. dollar        gained against a basket of major
currencies as investors weighed European political risk.
    The price of oil, one of Canada's major exports, rose as
attempts by major producers to erode stockpiles offset rising
U.S. oil output and exports. U.S. crude        prices were up
0.2 percent at $62.88 a barrel.             
    Canadian government bond prices were mixed across a flatter
yield curve, with the two-year            down 0.5 Canadian cent
to yield 1.804 percent and the 10-year             rising 15
Canadian cents to yield 2.28 percent.
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 2.2 basis points to a spread of -43.2
basis points. On Thursday, it touched its widest in eight months
at -45.4 basis points.

 (Reporting by Fergal Smith; Editing by David Gregorio)