* Canadian dollar at C$1.2756, or 78.39 U.S. cents
* Loonie touches its weakest since April 9 at C$1.2756
* Currency falls 1.1 percent for the week
* Bond prices mixed across steeper yield curve
By Fergal Smith
TORONTO, April 20 (Reuters) - The Canadian dollar weakened to an 11-day low against its U.S. counterpart on Friday after data showing domestic inflation rose at a slower-than-forecast pace further reduced expectations for an interest rate hike next month from the Bank of Canada. Canada's annual inflation rate in March edged up to 2.3 percent from 2.2 percent in February, the highest level in more than three years, Statistics Canada said. Analysts had forecast a 2.4 percent annual inflation rise. The increase was "a little less than expected, so the currency sold off on that," said Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management. The data indicated that the Bank of Canada can raise interest rates at a slightly slower pace, Marjaee said. The Bank of Canada left its benchmark interest rate on hold at 1.25 percent on Wednesday and said it did not know when or how aggressive it would need to be to keep inflation in check. Chances of an interest rate hike in May have fallen to 27 percent from about 40 percent before the rate announcement . In separate data, Canadian retail sales grew by 0.4 percent in February. At 4 p.m. EDT (2000 GMT), the Canadian dollar was trading 0.7 percent lower at C$1.2756 to the greenback, or 78.39 U.S. cents, its weakest level since April 9. For the week, the loonie fell 1.1 percent. Declines for the loonie came even as Canada and Mexico said good progress had been made in talks with the United States to modernize the North American Free Trade Agreement (NAFTA). Canada's trade dependent economy could benefit if a NAFTA deal is reached. Speculators have trimmed bearish bets on the Canadian dollar for the second straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of April 17, net short positions had fallen to 30,324 contracts from 31,672 a week earlier. The price of oil, one of Canada's major exports, recovered after an earlier slide driven by U.S. President Donald Trump's criticism of OPEC's role in pushing up global oil prices. U.S. crude oil futures settled 0.1 percent higher at $68.38 a barrel. Canadian government bond prices were mixed across a steeper yield curve, with the 10-year falling 10 Canadian cents to yield 2.333 percent. The gap between Canada's 10-year yield and its U.S. counterpart widened by 2.6 basis points to a spread of -62.0 basis points. (Reporting by Fergal Smith, editing by G Crosse)


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