CANADA FX DEBT-C$ weakens as Poloz unfazed by above-target inflation

    * Canadian dollar at C$1.2797, or 78.14 U.S. cents
    * Loonie touches weakest since April 9 at C$1.2805
    * Bond prices mixed across steeper yield curve
    * 10-year yield hits highest since Feb. 16 at 2.365 percent

    TORONTO, April 23 (Reuters) - The Canadian dollar weakened
to a two-week low against its U.S. counterpart on Monday, as the
greenback broadly rose and after Bank of Canada Governor Stephen
Poloz showed comfort with inflation running above the central
bank's 2-percent target.
     Poloz said he expects the inflation rate to be above 2
percent in 2018, but he is comfortable with that as long as the
long-term trend is steady, according to media reports published
on Sunday.             
    Data on Friday showed that Canada's annual inflation rate in
March edged up to 2.3 percent, the highest in more than three
years. Investors have been weighing whether higher inflation
will prompt the central bank to raise interest rates further
over the coming months.                     
    The U.S. dollar        rallied to a seven-week high after a
rise in the 10-year U.S. Treasury yield to within a whisker of
the psychologically important 3-percent level prompted buying of
the greenback.             
    At 8:45 a.m. EDT (1245 GMT), the Canadian dollar         
was trading 0.2 percent lower at C$1.2797 to the greenback, or
78.14 U.S. cents. The currency, which fell 1.2 percent last
week, touched its weakest level since April 9 at C$1.2805.
    Losses for the loonie came as the price of oil, one of
Canada's major exports, fell on rising U.S. borrowing costs and
the prospect of further output rises after another increase in
the weekly rig count.             
    U.S. crude        prices were down 1.4 percent at $67.43 a
    Canadian wholesale trade decreased by 0.8 percent in
February from January, amid falling sales in the miscellaneous
and motor vehicles and parts subsectors, Statistics Canada said.
Analysts had expected a 0.5 percent increase.                 
    On a brighter note for the currency, Canada and Mexico on
Friday said good progress had been made in talks with the United
States to modernize the North American Free Trade Agreement
(NAFTA) and ministers would meet again on Tuesday as they push
to wrap up a deal.             
    Canada sends about 75 percent of its exports to the United
States. Its economy could benefit if a NAFTA deal is reached.
    Canadian government bond prices were mixed across a steeper
yield curve, with the two-year            up 2.4 Canadian cents
to yield 1.926 percent and the 10-year             falling 13
Canadian cents to yield 2.353 percent.
    The 10-year yield touched its highest intraday since Feb. 16
at 2.365 percent.  

 (Reporting by Fergal; Editing by Bernadette Baum)