CANADA FX DEBT-C$ posts a 3-week high; pares gains on tame inflation

    * Canadian dollar at C$1.3579, or 73.64 U.S. cents
    * Loonie hits strongest since April 27 at C$1.3554
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, May 19 (Reuters) - The Canadian dollar strengthened
on Friday to a three-week high against its broadly weaker U.S.
counterpart, supported by higher oil prices, but some gains were
pared after domestic data showed core inflation remained muted.
    Canada's annual inflation rate held steady at 1.6 percent in
April, missing economists' forecasts for 1.7 percent, as higher
energy prices offset a decline in food costs for the seventh
month in a row, data from Statistics Canada showed.             
    "You have CPI with the core measures decelerating a touch.
That is something that will give the Bank of Canada all the
cover they need to stay on the sidelines," said Andrew Kelvin,
senior rates strategist at TD Securities. 
    In other domestic data, retail sales rose a
stronger-than-expected 0.7 percent in March, driven by increased
purchases at new and used cars dealers, as well as electronics
and appliance stores.                 
    Prices of oil, one of Canada's major exports, were heading
for a second week of gains on expectations big crude exporters
will extend output cuts to curb a persistent glut in
    U.S. crude        prices were up 1.18 percent at $49.93 a
    The U.S. dollar        fell to a fresh six-month low against
a basket of major currencies, having given up almost all the
gains made since Donald Trump, now surrounded by political
worries, was elected U.S. president last year.                 
    At 9:20 a.m. ET (1320 GMT), the Canadian dollar          was
trading at C$1.3579 to the greenback, or 73.64 U.S. cents, up
0.2 percent.
    The currency's weakest level of the session was C$1.3611,
while it touched its strongest since April 27 at C$1.3554.
    The loonie had hit a 14-month low at C$1.3793 earlier in
May, pressured in part by a more uncertain trade outlook with
the United States.
    On Thursday, the Trump administration set the clock ticking
toward a mid-August start of renegotiations of the North
American Free Trade Agreement.             
    Also, Canada suggested it could scrap plans to buy Boeing Co
       fighter jets if the United States backed Boeing's claims
that Canadian plane maker Bombardier Inc           dumped
jetliners in the U.S. market             
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. Stocks on Wall Street
were poised to open higher, reducing demand for safe-haven
assets such as bonds.
    The 10-year             fell 18 Canadian cents to yield
1.464 percent. It had touched on Thursday a six-month low at
1.417 percent.

 (Editing by Bernadette Baum)