CANADA FX DEBT-C$ recovers from near 2-week low as Treasury yields fall

* Canadian dollar rises 0.3 percent against the greenback

* New home prices in Canada were unchanged in August

* Price of U.S. oil falls 1.6 percent

* Canada-U.S. 10-year spread widens by 5.5 basis points

TORONTO, Oct 11 (Reuters) - The Canadian dollar rose against its broadly weaker U.S. counterpart on Thursday, recovering from an earlier 12-day low as data showing a slowdown in U.S. inflation weighed on the yields of U.S. government bonds.

Treasury yields extended their fall as the inflation data dented expectations of a more aggressive pace in raising interest rates by the U.S. Federal Reserve.

A faster pace of Fed rate hikes could reduce investor incentive to buy lower-yielding instruments denominated in Canadian dollars.

The U.S. dollar held near its lowest levels in nearly two weeks after the inflation data.

At 9:58 a.m. (1358 GMT), the Canadian dollar traded 0.3 percent higher at 1.3026 to the greenback, or 76.77 U.S. cents. The currency touched its weakest intraday level since Sept. 27 at 1.3077.

Still, the loonie climbed less than some other G10 currencies as the price of oil, one of Canada’s major exports, slumped to two-week lows.

Oil was pressured by an industry report showed that U.S. crude inventories rose more than expected. U.S. crude prices were down 1.6 percent at $71.97 a barrel.

New home prices in Canada were unchanged in August, Statistics Canada said, falling short of the 0.1 percent gain that analysts had estimated. The year-over-year advance in prices slowed to 0.4 percent from 0.5 percent in the prior month.

Canadian government bond prices were higher across much of a steeper yield curve, with the 10-year rising 2 Canadian cents to yield 2.533 percent.

The gap between Canada’s 10-year yield and its U.S. counterpart widened by 5.5 basis points to a spread of 63.5 basis points in favor of the U.S. bond. (Reporting by Fergal Smith; Editing by Jeffrey Benkoe)