(Updates to close)

By Pranav Kashyap and Nivedita Balu

Feb 18 (Reuters) - Canada's main stock index closed

higher on Tuesday, powered by energy and financial shares, as

investors digested news that inflation inched higher in January.

The Toronto Stock Exchange's S&P/TSX composite index

closed up 165.61 points, or 0.65%, at 25,648.84.

The heavyweight energy sector rose 1.4% with

oil prices as traders assessed the fallout from drone attacks on

a key conduit for Kazakhstan's oil exports. Traders were

still cautious as talks to end the war in Ukraine could boost

Russian supplies.

Financials also added 0.8%, led by iA

Financial ( IAFNF ) and the country's biggest lender Royal Bank

of Canada ( RY ).

Bay Street analysts expected big banks to post strong

first-quarter results next week, but noted an uncertain outlook

for the rest of 2025 due to risk of a tariff war between the

U.S. and other countries.

Materials rose 1.2% as it tracked a jump in

gold prices driven by persistent demand for safe-haven assets.

Separately, January's annual inflation rate in Canada

rose slightly to 1.9% from December.

While lower prices from a sales tax reprieve provided

some relief, they were partly offset by rising costs of gasoline

and natural gas, as shown in Tuesday's data.

The yield on Canada's 10-year benchmark bond

and the 5-year benchmark bond hit three-week highs,

exerting pressure on equities earlier in the day.

"There is clear evidence that underlying inflation pressures

are building," said Stephen Brown, deputy chief North America

economist at Capital Economics. "Given the tariff threat hanging

over the economy, we still think the odds slightly favour

another cut from the Bank of Canada next month, but it is

shaping up to be a close call."

The threat of tariffs somewhat receded as global

attention shifted to the developments in the Ukraine conflict

involving U.S. President Donald Trump and his Russian

counterpart, Vladimir Putin.

In other stocks, Fortuna Mining ( FSM ) lost 8.3% after

CIBC downgraded the miner to "underperform" from "neutral."

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