* CPI falls slightly more than expected on year
* C$ loses ground versus greenback after data
* Bond prices slightly higher across curve
By Frank Pingue
TORONTO, Oct 16 (Reuters) - Canada's dollar fell versus the U.S. currency early on Friday after domestic inflation data did not alter expectations that the Bank of Canada can keep its pledge to leave interest rates steady through mid-2010.
The Canadian unit dropped as low as C$1.0402 to the U.S. dollar, or 96.14 U.S. cents, compared with C$1.0334 to the U.S. dollar, or 96.77 U.S. cents, just before the data.
"It's in part the CPI data but I think there is a broader move going on here," said Stewart Hall, market strategist at HSBC Canada. "I'd be leery to lay it all at the feet of CPI because it looks like you're starting to get a U.S. dollar move that's maybe related more to (corporate) earnings than CPI."
The U.S. dollar was broadly stronger on Friday as Bank of America earnings fell short of expectations, sparking profit-taking in a range of currencies that earlier hit multi-month highs against the greenback, as well as equities and commodities. [USD/]
By 8:05 a.m. (1205 GMT), the Canadian unit was at C$1.0383 to the U.S. dollar, or 96.31 U.S. cents, down from C$1.0345 to the U.S. dollar, or 96.67 U.S. cents, at Thursday's close.
Early on Thursday, the currency had rallied to C$1.0207 to the U.S. dollar, or 97.97 U.S. cents, which was its highest level since July 2008.
The Canadian CPI data showed consumer prices dropped in September from a year earlier due largely to tumbling gasoline prices in a mixed report that ruled out any specter of either prolonged deflation or unruly price pressures. [ID:nN16340697]
The CPI is expected to permit the Bank of Canada to hold the line on interest rates next Tuesday and repeat a conditional pledge that rates will stay unchanged at 0.25 percent through mid-2010.
Domestic bond prices held higher across the curve. (Editing by Jeffrey Hodgson)