CANADA FX DEBT-C$ rallies as hot core CPI data bolsters rate hike bets

(Adds investor quote and details throughout, updates prices) * Canadian dollar strengthens 0.5% against greenback * Measures of core inflation rise * Price of U.S. oil settles 3.2% lower * Canadian bond yields rise across flatter curve By Fergal Smith TORONTO, Aug 16 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday as investors raised bets on another oversized interest rate hike by the Bank of Canada next month after domestic data showed rising underlying inflation pressures. Canada's annual inflation rate slowed to 7.6% in July as gasoline prices eased, but that was still far above the Bank of Canada's 2% target, while the average of the central bank's preferred measures of core inflation ticked up to 5.3%. Canadian inflation may have peaked, but it remains far too high, BoC Governor Tiff Macklem said in a newspaper op-ed. "The level of inflation is probably still concerning to the Bank of Canada and suggests that they're not done yet (hiking interest rates)," said Michael Greenberg, SVP and portfolio manager, Franklin Templeton Investment Solutions. Money markets were pricing in 59 basis points of tightening by the central bank at its next policy announcement on Sept. 7, up from 53 basis points before the data. In July, the BoC hiked by a full percentage point. The Canadian dollar was trading 0.5% higher at 1.2840 to the greenback, or 77.60 U.S. cents, clawing back some of the previous day's sharp decline that came as the U.S. dollar broadly rallied. It traded in a range of 1.2832 to 1.2928. The move higher for the loonie came despite pressure on the price of oil, one of Canada's major exports. U.S. crude oil futures settled 3.2% lower at $86.53 a barrel, their lowest since before Russia's invasion of Ukraine, as economic data spurred concerns about a potential global recession. Canadian government bond yields jumped across a flatter curve. The 2-year touched its highest since July 14 at 3.372% before dipping to 3.336%, up 12.7 basis points on the day, while the 10-year was up 8 basis points at 2.775%. (Reporting by Fergal Smith; Editing by Mark Heinrich and Alex Richardson)