CANADA FX DEBT-C$ inches higher; Carney reassures markets

* C$ edges up to C$0.9852 to the U.S. dollar, or $1.0150

* Bond prices lower after three-session surge

* Canada’s annual inflation rate eases in July

* Carney, Flaherty soothe on world economy, ready to act (Adds details)

By Ka Yan Ng

TORONTO, Aug 19 (Reuters) - Canada’s dollar was firmer against the U.S. currency at midday on Friday, reassured by testimony from top Canadian policymakers that while risks remain in the global economy, Ottawa is ready to intervene in case of major world turmoil.

In testimony before a parliamentary committee on Friday, Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty both highlighted the risks posed by Europe’s stubborn debt crisis and the slow U.S. recovery from recession.

But neither forecast a recession in either area, although Carney admitted that Canada’s economy might contract in the second quarter. [ID:nN1E77I0KX] [ID:nN1E77I0L1]

“There wasn’t anything too bombastic out of Governor Carney to convince the dollar to move in any sustained manner as a result of his testimony,” said David Tulk, chief Canada macro strategist at TD Securities.

At 12:15 p.m. (1615 GMT), the currency was at C$0.9852 to the U.S. dollar, or $1.0150, up moderately from Thursday’s session close at C$0.9884 to the U.S. dollar, or $1.0117.

The appearance by Carney and Flaherty in Ottawa marked the key event of the session for domestic markets, as inflation data for July, released earlier by Statistics Canada, suggested no inflation pressures, leaving the Bank of Canada some breathing room to stand pat on rates for now. [ID:nN1E77I02W]

“Very neutral data. Pretty much in line with where the market had expected, and also falling back slightly from last month on some of the numbers, which I think just provides some flexibility to the Bank of Canada,” said Camilla Sutton, chief currency strategist at Scotia Capital.

Data showed Canada’s annual inflation rate eased in July to 2.7 percent from 3.1 percent in June, in part because the introduction of higher sales taxes in three provinces is no longer included in calculations, Statistics Canada said on Friday. [ID:nSCLJJE70X]

The closely watched annual core rate, which strips out prices of some volatile items, rose to 1.6 percent from 1.3 percent in June.

Government bond prices moved lower, giving back a fraction of rally of the past three sessions. The two-year bond CA2YT=RR was off 8 Canadian cent to yield 0.900 percent, while the 10-year bond CA10YT=RR fell 11 Canadian cents to yield 2.313 percent. (Additional reporting by Trish Nixon; editing by Rob Wilson)