CANADA FX DEBT-C$ recovers from near 2-week low on U.S. inflation miss

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* Canadian dollar rises 0.3 percent against the greenback

* New home prices in Canada were unchanged in August

* Price of U.S. oil falls 3 percent

* Canada-U.S. 10-year spread widens by 4 basis points

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

The inflation data dented expectations of a more aggressive pace in raising interest rates by the U.S. Federal Reserve.

“It has taken a bit of steam out of the U.S. dollar,” said Rahim Madhavji, president at Knightsbridge Foreign Exchange.

The greenback fell to a near two-week low against a basket of currencies as the weaker-than-expected inflation and further equity losses on Wall Street pressured U.S. Treasury yields lower.

At 4:10 p.m. (2010 GMT), the Canadian dollar was trading 0.3 percent higher at 1.3030 to the greenback, or 76.75 U.S. cents. The currency’s strongest level of the session was 1.3015, while it touched its weakest since Sept. 27 at 1.3077.

Still, the loonie underperformed some other G10 currencies.

“What is limiting gains for the Canadian dollar is weakness in oil,” Madhavji said.

The price of oil, one of Canada’s major exports, slumped as stock markets fell and data showed a bigger-than-expected build in U.S. crude inventories.

U.S. crude oil futures settled 3.0 percent lower at $70.97 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.

Canada does not hold out much hope that Washington will quickly lift tariffs it imposed on steel and aluminum exports and is resisting a U.S. push to agree to strict quotas, two sources familiar with the matter said.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The 10-year climbed 33 Canadian cents to yield 2.496 percent.

The gap between Canada’s 10-year yield and its U.S. counterpart widened by 4 basis points to a spread of 65 basis points in favor of the U.S. bond. (Reporting by Fergal Smith; Editing by Jeffrey Benkoe and Peter Cooney)