CANADA FX DEBT-C$ weakens on softer-than expected inflation data

 * C$ hits session low of C$1.0005 or 99.95 U.S. cents

 * Money market, bond yields fall after report

 * Data reduces pressure on Bank of Canada to hike rates
 (Updates with analyst commentary, details)

 TORONTO, Jan 25 (Reuters) -  The Canadian dollar slumped to
a session low against its U.S. counterpart on Tuesday after
domestic inflation data came in softer than expected, reducing
the odds the the central bank will hike rates soon.

 Canada's annual inflation rate rose below consensus in
December for an annual rate of 2.4 percent, largely driven by
higher gasoline prices. [ID:nN21208237]

 The currency CAD=D4 fell back below parity against the
greenback, touching a low of C$1.0005 to the U.S. dollar, or
99.95 U.S. cents shortly after the report, down from around
C$0.9969 to the U.S. dollar, or $1.0031 immediately before the
release.

 "We've seen a little bit of a weakening in the currency on
this mild reading, probably just on the view that the bank is
going to be in absolutely no rush to hike rates," said Doug
Porter, deputy chief economist at BMO Capital Markets.

 Overnight index swaps, which trade based on expectations
for the central bank's key policy rate, showed investors see a
94.47 percent probability rates will stay on hold March 1,
compared with 93.41 percent before the data. BOCWATCH

 At 8:01 a.m. (1301 GMT), the Canadian dollar was at
C$0.9995 against the greenback, or $1.0005, down from Monday's
North American finish of C$0.9946 to the U.S. dollar, or
$1.0054.

 The currency was already weaker prior to the inflation
report, as markets were seen pricing in a downside surprise in
the data.

 As well, appetite for risk was hurt by a shock contraction
in UK economic growth, which dominated global currency,
commodity and equity markets overnight. [FRX/] [O/R]
[MKTS/GLOB]

 Canadian bond prices firmed after the softer-than-expected
inflation reading. The interest-rate sensitive two-year bond
CA2YT=RR was up 8 Canadian cents to yield 1.683 percent, down
from 1.727 percent just before the report. <0#CABMK=>

 The 10-year bond CA10YT=RR advanced 25 Canadian cents to
yield 3.287 percent, down from 3.291 percent before the data.
 (With additional reporting by Euan Rocha; editing by Jeffrey
Hodgson)