CANADA FX DEBT-C$ retreats as hot U.S. inflation boosts greenback

* Canadian dollar at C$1.2632, or 79.16 U.S. cents

* Oil prices fall 1.1 percent

* Bond prices mixed across flatter yield curve

TORONTO, Feb 14 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday after a strong U.S. inflation report boosted the greenback and weighed on stocks, while oil prices fell. U.S. consumer prices rose more than expected in January, with a measure of underlying inflation posting its biggest gain in a year.

The U.S. dollar rallied against a basket of major

currencies and U.S. stock index futures fell as the data raised expectations that price pressures will accelerate this year and prompt a faster pace of interest rate increases from the Federal Reserve. Commodity-linked currencies such as the Canadian dollar tend to underperform when stocks fall. At 9:12 a.m. EST (1412 GMT), the Canadian dollar was trading 0.3 percent lower at C$1.2632 to the greenback, or 79.16 U.S. cents. The currency's strongest level of the session was C$1.2561, while it touched its weakest since Friday at C$1.2649. The price of oil, one of Canada's major exports, fell for a third day, under pressure from concern about rising U.S. production and how much it would hurt efforts by major producers to control global supplies.

U.S. crude prices were down 1.1 percent at $58.53 a

barrel. In domestic data, the Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed prices rose 0.3 percent in January from a month earlier. But the pace of gains continued to decelerate on a year-over-year basis. The Canadian Real Estate Association will release its monthly home sales report on Thursday. Canada's manufacturing sales report for December is due on Friday. Canadian government bond prices were mixed across a flatter

yield curve, with the two-year down 2 Canadian cents to yield 1.795 percent and the 10-year rising 12

Canadian cents to yield 2.323 percent. The gap between Canada's 2-year yield and its U.S. equivalent widened by 2.9 basis points to -35.2 basis points, its widest since Nov. 30.

(Reporting by Fergal Smith; Editing by Meredith Mazzilli)