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CANADA FX DEBT-C$ notches 2-week high as stocks rally, inflation cools


Loonie touches its strongest since March 7


Canada's annual inflation rate cools to 5.2%


Price of U.S. oil rises 1.4%


Canada-U.S. 2-year spread widens by 9.5 basis points

TORONTO, March 21 (Reuters) - The Canadian dollar strengthened to a two-week high against its U.S. counterpart on Tuesday as the rout in global bank stocks subsided, while domestic data showed inflation slowing more than expected in February.

Canada's annual inflation rate cooled to 5.2% in February from 5.9% in January, beating economists' forecast that it would fall to 5.4%, helped by a drop in gas prices and softer growth in shelter costs.

The average of two of the Bank of Canada's core measures of underlying inflation, CPI-median and CPI-trim, also fell, coming in at 4.9% compared with 5.1% in January.

Money markets were little changed after the data, continuing to see a 15% chance that the BoC would cut interest rates by 25 basis points at its next policy decision on April 12 and pricing in 43 basis points of easing by the end of the year.

Before the banking turmoil began, investors were pricing in additional tightening by the BoC. Its benchmark rate is at 4.50%.

The Canadian dollar was trading 0.1% higher at 1.3645 to the greenback, or 73.29 U.S. cents, its strongest level since March 7.

U.S. stock indexes rallied as the rescue of Credit Suisse calmed nerves about a bigger banking crisis, while investors awaited the outcome on Wednesday of the Federal Reserve's monetary policy meeting.

The price of oil, one of Canada's major exports, extended its recovery from a 15-month low it hit the previous day. U.S. crude oil futures rose 1.4% to $68.6 a barrel.

Canadian government bond yields were higher across the curve, tracking the move in U.S. Treasuries.

The 2-year rose 13.1 basis points to 3.748% but was trading 9.5 basis points further below its U.S. equivalent to a gap of about 40 basis points. (Reporting by Fergal Smith; editing by Jonathan Oatis)

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