CANADA FX DEBT-C$ pares gains as rate hike bets recede further on CPI data

    * Canadian dollar rises 0.1 percent against the greenback
    * Canada's annual inflation rate falls to 1.7 percent
    * Price of U.S. oil rallies 1.2 percent
    * Bond prices rise across the yield curve
    * Canada-U.S. 2-year spread widens by 2.1 basis points

    By Fergal Smith
    TORONTO, Dec 19 (Reuters) - The Canadian dollar edged higher
against its U.S. counterpart on Wednesday as oil prices and
stocks rose, but the currency pared gains after domestic
inflation data supported bets for the Bank of Canada to stay
sidelined over the coming months.
    Lower gas prices pulled Canada's annual inflation rate in
November down to 1.7 percent, the first time in 10 months it has
been below the Bank of Canada's 2.0 percent target, Statistics
Canada data indicated. Analysts had forecast the rate would fall
to 1.8 percent from the 2.4 percent seen in October.
    "The key is that the average of the three core measures
slipped again to 1.9 percent," said Derek Holt, vice president
of capital markets economics at Scotiabank. "This was more than
just gas prices, there was underlying softness in the basket."
    Chances of a Bank of Canada interest rate hike in March
dropped to 13 percent from 17 percent before the data, the
overnight index swaps market showed. Bets on further tightening
had already been slashed after a dovish policy announcement
earlier this month from the central bank.                       
    Expectations that the Federal Reserve will signal on
Wednesday fewer rate hikes given the turmoil in financial
markets and rising fears of a recession, helped boost stocks.
    The price of oil, one of Canada's major exports, stabilized
after one of its biggest falls in years, but remained under
pressure from oversupply and concern that a slowing global
economy would depress demand.             
    U.S. crude        prices were up 1.2 percent at $46.79 a
    At 9:10 a.m. (1410 GMT), the Canadian dollar          was
trading 0.1 percent higher at 1.3458 to the greenback, or 74.31
U.S. cents. The currency, which hit on Tuesday a
one-and-a-half-year low at 1.3497, traded in a range of 1.3434
to 1.3482.
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 4.5 Canadian cents to
yield 1.898 percent and the 10-year             rising 19
Canadian cents to yield 1.993 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent widened by 2.1 basis points to a spread of 75 basis
points in favor of the U.S. bond.

 (Reporting by Fergal Smith; Editing by David Gregorio)