June 19 (Bloomberg) -- Canada's dollar rose for a fourth day, its longest winning streak in a month, after a report showed inflation accelerated in May to the highest since 1991.

The Canadian dollar gained versus 14 of the 16 most-traded currencies as rising prices fueled speculation the Bank of Canada will leave borrowing costs unchanged for the rest of 2008. The currency has gained 1 percent since June 10, when the central bank unexpectedly held the rate on overnight loans between commercial banks at 3 percent.

``Today's data helps explain the central bank's change in focus,'' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto, a unit of Canada's fourth-largest bank. ``We are probably going to see a much more hawkish central bank in the months ahead.''

Canada's dollar gained 0.3 percent to C$1.0141 per U.S. dollar at 9:39 a.m. in Toronto, from C$1.0171 yesterday. The last time the currency increased for at least four days was during the period ended May 19. One Canadian dollar buys 98.62 U.S. cents.

The Canadian currency has traded near parity with its U.S. counterpart this year. It touched a 2008 low of C$1.0379 on Jan. 22, and a high of 97.12 cents per U.S. dollar on Feb. 28.

Consumer prices rose 2.2 percent from a year earlier, the fastest pace since January, Statistics Canada said in Ottawa. Economists surveyed by Bloomberg News said inflation would quicken to 1.9 percent, the median of 22 estimates, from 1.7 percent in April. Consumer prices rose 1 percent from April, the highest since January 1991, exceeding analysts' 0.6 percent forecast.

The central bank's target for annual price increases is below 2 percent.

`A Little Better'

``The Canadian dollar looks a little better from here,'' said Steve Butler, director of foreign exchange trading at Scotia Capital Inc. in Toronto, a unit of Canada's third-largest bank. ``But it hasn't got enough momentum from this inflation report to move out of the range.''

Canada's currency has depreciated 1.4 percent this year as slower growth in the U.S., Canada's biggest trading partner, reduced demand for the nation's manufactured goods such as cars and auto parts. Gross domestic product unexpectedly contracted at a 0.3 percent annualized rate in the first quarter, the first drop in almost five years, according to the government. Statistics Canada will report April growth numbers on June 30.

Wholesale Sales

The currency extended its gain after a separate government report showed wholesale sales rose in April faster than economists predicted, led by electronics and pharmaceuticals.

Sales advanced 1.4 percent to C$43.4 billion ($42.9 billion) on a 7.2 percent gain in electronics, Statistics Canada said in Ottawa. Economists surveyed by Bloomberg said total sales would gain 0.8 percent, the median of 12 estimates. The agency revised March's 0.6 percent increase to 0.7 percent.

Canada's dollar is forecast to decline to C$1.07 in the first quarter of 2009, according to the median estimate in a Bloomberg survey of 36 analysts.

The yield on the two-year government bond rose 11 basis points, or 0.11 percentage point, to 3.37 percent. The price of the 3.75 percent security due in June 2010 fell 20 cents to C$100.73.

Two-year notes are more sensitive to interest-rate changes than longer-dated securities. The yield has fallen 2 basis points this week and rose 35 basis points this month.

10-Year Yield

The 10-year government bond's yield rose 3 basis points to 3.86 percent. The price of the 4 percent security due in June 2017 declined 24 cents to C$101.11.

Bankers' acceptances futures contracts for September rose to 3.38 percent from 3.31 percent yesterday. The futures settled at a three-month lending rate averaging 16 basis points above the central bank's target since Bloomberg started tracking the data.

The 10-year bond yielded 49 basis points more than the two- year security, down from 78 basis points on June 6.

Canada's two-year bond yield will touch 3.06 percent by the end of this year, with the 10-year yield reaching 3.88 percent, according to the median forecast in a Bloomberg survey.

Canadian government bonds have returned 2.3 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries returned 1 percent so far this year.

To contact the reporter on this story: Haris Anwar in Toronto at hanwar2@bloomberg.net

Last Updated: June 19, 2008 09:40 EDT