* C$ ends at C$1.0087 vs US$, or 99.14 U.S. cents
* CPI jumps, slashes already long odds of rate cut
* Europe optimism spurs risk appetite
* Bond prices fall, Canada underperforms
By Andrea Hopkins
TORONTO, Oct 21 (Reuters) - The Canadian dollar ended stronger against its U.S. counterpart on Friday as speculation that Europe was closer to solving its debt crisis revived risk appetite, sinking the safe-haven greenback.
Optimism on Europe and the possibility of more action from the U.S. Federal Reserve spurred the largest daily drop in the U.S. dollar since August and sent investors to riskier assets including stocks and commodity-linked currencies such as the Canadian dollar.
Unexpectedly strong Canadian inflation data also helped push the Canadian currency back towards parity with the U.S. dollar as robust price pressures slashed the already slim chance that the central bank will cut interest rates.
"The Canadian dollar is benefiting from the inflation data but also the fallout in the U.S. dollar from hope of additional Fed measures and also the associated rally in risk assets," said Fergal Smith, managing market strategist at Action Economics.
The Canadian dollar CAD=D3 ended the North American session at C$1.0087 to the U.S. dollar, or 99.14 U.S. cents, close to the session high of C$1.0067 and well above Thursday's North American session close of C$1.0150, or 98.52 U.S cents.
The rise left the currency little changed on the week, just above last Friday's close at C$1.0105 versus the U.S. dollar, or 98.96 U.S. cents.
While pressures including the debt crisis in Europe are expected to keep the Bank of Canada from tightening credit until at least next year, the unexpectedly strong rise in consumer prices in September all but erased the chances the bank will soon trim official interest rates to support growth.
The data showed Canada's annual core inflation rate jumped in September to 2.2 percent, its highest level since December 2008, from 1.9 percent in August. Analysts had forecast a 1.9 percent rate in September. [ID:nN1E79K02G]
"The jump in the core index is quite surprising. It's quite a large increase for the second straight month," said Sal Guatieri, senior economist at BMO Capital Markets.
"On the surface, to the extent it reduces expectations of a bank rate cut, it's positive for the Canadian dollar."
Europe remained the biggest focus for markets, with sentiment turning positive once again as investors bet policymakers will move forward in coming days to resolve the euro zone's two-year-old debt crisis.
Global equities surged and the euro gained as doubts about the ability of European leaders to tackle the crisis eased. German government sources said there were no serious differences between Germany and France ahead of a closely watched summit on Sunday in Brussels. [MKTS/GLOB]
The announcement of a second summit meeting to follow on Wednesday added to the session's positive tone. France and Germany - the two biggest economies in the euro zone - are spearheading the effort to adopt a comprehensive strategy to fight a debt crisis that threatens to engulf the entire region. [ID:nB4E7LA018] [ID:nL5E7LK68G].
Canadian government bond prices fell across the board. The two-year Canadian government bond CA2YT=RR was down 6 Canadian cents to yield 1.076 percent, while the 10-year bond CA10YT=RR fell 41 Canadian cents to yield 2.359 percent. (Editing by Jeffrey Hodgson and Peter Galloway)
