CANADA FX DEBT-C$ rises on inflation beat, higher oil prices

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar at C$1.2661, or 78.98 U.S. cents
    * Canada's inflation rate pulls back to 1.7 percent
    * Bond prices rise across flatter yield curve
    * Canada-U.S. 2-year spread reaches widest since June 14

    By Fergal Smith
    TORONTO, Feb 23 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Friday, buoyed by rising oil
prices and data showing Canada's inflation has cooled less than
economists had expected.
    At 4 p.m. EST (2100 GMT), the Canadian dollar CAD=D4 was
trading 0.3 percent higher at C$1.2661 to the greenback, or
78.98 U.S. cents.
    The currency traded in a range of C$1.2614 to C$1.2726.
    "Inflation was a little firmer than expected, especially the
core, and that helped the Canadian dollar strengthen," said Win
Thin, global head of emerging markets strategy at Brown Brothers
    The annual inflation rate pulled back to 1.7 percent in
January, above economists' forecasts for 1.4 percent, while
underlying inflation rose.             
    "Before today the Canadian dollar was under a little bit of
pressure," Thin said. "Today's inflation data helped it gain a
little bit more traction."
    On Thursday, the loonie touched a two-month low at $1.2760. 
For the week, it fell 0.9 percent.     
    Still, 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.
    Speculators cut bullish bets on the Canadian dollar for the
second straight week, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed. As of Feb.
20, net long positions had fallen to 23,127 contracts from
32,529 a week earlier.
    The price of oil, one of Canada's major exports, was boosted
by the shutdown of the El Feel oilfield in Libya. U.S. crude oil
futures        settled 1.2 percent higher at $63.55 a barrel.
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries. The two-year
           rose 3.5 Canadian cents to yield 1.782 percent and
the 10-year             climbed 38 Canadian cents to yield 2.251
    The gap between Canada's two-year yield and its U.S.
equivalent widened by 1 basis point to a spread of -46.4 basis
points, its widest since June 14.

 (Reporting by Fergal Smith)