* Canadian dollar weakens 0.5% against the greenback
* Touches its weakest since Dec. 14 at 1.3501
* Canadian inflation rises to 3.4% in December
* Canadian bond yields increase across the curve
TORONTO, Jan 16 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday, but the decline was less than for all the other G10 currencies as domestic inflation data reduced expectations for an early interest rate cut by the Bank of Canada.
The loonie was trading 0.5% lower at 1.3495 to the U.S. dollar, or 74.10 U.S., after touching its weakest intraday level since Dec. 14 at 1.3501.
"If you are looking for data to signal a rate cut is imminent, this isn't it," Leslie Preston, a senior economist at TD Economics, said in a note. "December's inflation report underscores that the last mile of getting inflation all the way back to 2% is the hardest."
Canada's annual inflation rate rose to 3.4% in December from 3.1% in November and core measures were hotter than expected, a sign of sticky inflation ahead of an interest rate decision on Jan. 24.
The BoC is widely expected to leave its benchmark rate on hold at a 22-year high of 5% next week. Money markets see a roughly one-in-three chance that the central bank will begin cutting rates in March, down from nearly 50% before the data.
The U.S. dollar was up nearly 1% against a basket of major currencies as investors also tempered their expectations for an early rate cut from the Federal Reserve.
The price of oil, one of Canada's major exports, was down 0.6% at $72.23 a barrel.
Canadian government bond yields rose across the curve. The 2-year was up 11.8 basis points at 3.912%, while the gap between it and the U.S. equivalent narrowed by 2.6 basis points to 31.8 basis points in favor of the U.S. note. (Reporting by Fergal Smith; Editing by Andrea Ricci and Lisa Shumaker)
