CANADA FX DEBT-C$ firms after inflation cools less than expected

* Canadian dollar at C$1.2695, or 78.77 U.S. cents

* Canada's inflation rate pulls back to 1.7 percent

* Bond prices mixed across a flatter yield curve

TORONTO, Feb 23 (Reuters) - The Canadian dollar edged higher against its broadly firmer U.S. counterpart on Friday after data showed Canada's inflation cooled less than economists had expected. At 9:51 a.m. EST (1451 GMT), the Canadian dollar was trading 0.1 percent higher at C$1.2695 to the greenback, or 78.77 U.S. cents. The currency traded in a range of C$1.2614 to C$1.2726. The annual inflation rate pulled back to 1.7 percent in January, above economists' forecasts for 1.4 percent, as consumers paid less for gasoline and vehicles, data from Statistics Canada showed. Underlying inflation firmed.

The data may not have much impact on the Bank of Canada's interest rate outlook after inflation was boosted by a minimum wage hike in Ontario, Canada's most populous province. "I would think the BoC looks through this minimum wage pass through effect as a transitory driver," said Derek Holt, head of capital markets economics at Scotiabank. Chances of another rate hike in March stayed at less than 10 percent, data from the overnight index swaps market showed.

The central bank lifted rates in January for the third time since July. Its benchmark rate sits at 1.25 percent.

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

currencies as investors weighed European political risk.

The price of oil, one of Canada's major exports, rose as attempts by major producers to erode stockpiles offset rising

U.S. oil output and exports. U.S. crude prices were up

0.2 percent at $62.88 a barrel. Canadian government bond prices were mixed across a flatter

yield curve, with the two-year down 0.5 Canadian cent to yield 1.804 percent and the 10-year rising 15

Canadian cents to yield 2.28 percent. The gap between Canada's two-year yield and its U.S. equivalent narrowed by 2.2 basis points to a spread of -43.2 basis points. On Thursday, it touched its widest in eight months at -45.4 basis points.

(Reporting by Fergal Smith; Editing by David Gregorio)