CANADA FX DEBT-C$ slips as data reduces rapid rate hike risk

(Adds market comment, speculative interest data, updates prices)

* Canadian dollar at C$1.2338, or 81.05 U.S. cents

* Bond prices mixed across flatter yield curve

* Annual CPI rises 1.4 percent in August

* Retail sales volumes fall 0.2 percent in July

TORONTO, Sept 22 (Reuters) - The Canadian dollar slipped slightly against its U.S. counterpart on Friday after domestic data indicated the country's central bank does not have to raise rates rapidly. Canada's annual inflation rate rose to 1.4 percent last month from 1.2 percent in July. That was slightly below economists' forecasts of 1.5 percent, although two out of three of the central bank's core inflation measures also increased.

"Employment and other data has been quite solid, but inflation has been lagging," said Don Mikolich, executive director for foreign exchange sales at CIBC Capital Markets. He said that he would be looking for clues to the Bank of Canada's likely interest rate trajectory when Governor Stephen Poloz speaks publicly next Wednesday, for the first time since two back-to-back rate hikes.

At 4 p.m. EDT (2000 GMT), the Canadian dollar was

trading at C$1.2338 to the greenback, or 81.05 U.S. cents, down 0.1 percent. The slip for the loonie came as the U.S. dollar buckled against the yen amid simmering tensions on the Korean peninsula. The currency traded in a range of C$1.2255 to C$1.2351 on the day, and declined 1.2 percent since the start of the week. Retail sales, meanwhile, rose 0.4 percent in July, topping economists' expectations for a gain of 0.1 percent, but volumes showed a 0.2 percent decline. "The Bank (of Canada) is going to be looking at the retail data as maybe an indication that they don't need to go on an exceptionally quick path toward normalization," said Andrew Kelvin, senior rates strategist at TD Securities. "It's not so weak a print that it's going to preclude further tightening this year." Chances of another rate hike in October are running at 41 percent, the overnight index swaps market indicated. Speculators have meanwhile raised bullish bets on the loonie, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of Sept. 19, Canadian dollar net long positions had climbed to 58,846 contracts, the highest in six weeks, from 50,499 contracts a week earlier. Canadian government bond prices were mixed across a flatter

yield curve, with the two-year down 2 Canadian cents to yield 1.605 percent and the 10-year adding 7

Canadian cents to yield 2.113 percent. The gap between Canada's two-year yield and its U.S. equivalent widened by 2.1 basis points to 17 basis points.

(Reporting by Alastair Sharp, Additional reporting by Fergal Smith, Editing by Rosalba O'Brien)