* C$ rises to $1.0190
* Bonds up as military action possible in Libya
* Canada annual inflation rate eases in February
* Bank of Canada confirms it took part in yen intervention
TORONTO, March 18 (Reuters) - The Canadian dollar CAD=D4 firmed against the U.S. currency on Friday, taking tame inflation data in stride, as the focus returned to Japan's crisis and rising oil prices on a possible military action against Libya.
Market watchers were also digesting actions by the Group of Seven rich nations to jointly intervene to weaken a soaring yen. [ID:nL3E7EH3HN]
In a move to calm financial markets grappling with continued anxiety over the nuclear crisis in quake-ravaged Japan, the Bank of Japan bought billions of dollars and were backed up by action by European central banks. The Bank of Canada confirmed it also took part. [ID:nTZOIEE7TJ]
The currency held overnight gains as Canada's annual inflation rate in February cooled to 2.2 percent from 2.3 percent in January, just below the consensus forecast of 2.3 percent, and the core rate fell to its lowest level on record at 0.9 percent. [ID:nSCLIEE7AG]
The Canadian dollar "will probably get buffeted by geopolitical developments, particularly with things in the Middle East," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
Canada's currency, typically influenced by oil prices, pushed higher as U.S. oil prices rose after the United Nations approved military action to contain Libyan leader Muammar Gaddafi, heightening geopolitical tensions in the oil-rich Middle East. [O/R]
At 8 a.m. (1200 GMT), the currency was at C$0.9814 to the U.S. dollar, or $1.0190, up from Thursday's North American session close at C$0.9863 to the U.S. dollar, or $1.0139.
Government bonds were slightly higher in safe haven bid as markets watched for developments in Libya. The two-year Canadian government bond CA2YT=RR rose 2 Canadian cents to yield 1.592 percent, while the 10-year bond CA10YT=RR gained 18 Canadian cents to yield 3.165 percent.
The tame inflation data implies less need for a swift interest rate hike, analysts said, and helped support the interest-rate sensitive short-dated issues. Overnight index swaps, which trade based on expectations for the key central bank rate, showed traders scaled back bets for Bank of Canada rate hikes in the coming months. BOCWATCH
(Reporting by Ka Yan Ng; Editing by Padraic Cassidy)