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TSX ends down 0.3% at 21,788.48

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Bond yields climb on inflation surprise

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Annual rate of CPI rises to 2.9%

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Consumer discretionary falls 1.6%

(Updates at market close)

By Fergal Smith

June 25 (Reuters) - Canada's main stock index fell on

Tuesday, giving back some of the previous day's strong gains, as

hotter-than-expected domestic inflation data lowered

expectations the Bank of Canada would cut interest rates again

next month.

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

ended down 60.11 points, or 0.3%, at 21,788.48, after

posting on Monday it's biggest gain in seven weeks.

Canada's annual rate of inflation accelerated to 2.9% in May

from 2.7% in April, after showing signs of cooling since the

start of the year.

It led to investors pricing in a less-than even chance the

BoC would cut interest rates for a second time at its next

policy decision on July 24, down from 65% before the data, and

to a jump in long-term borrowing costs. Still, roughly two 25

basis point rate cuts are expected by December.

"The fact that we are seeing rates move higher it's putting

some pressure on stocks today," said Angelo Kourkafas, senior

investment strategist at Edward Jones.

"It introduces a little bit more uncertainty but doesn't

change the broader narrative that earnings are accelerating,

interest rates and the policy rate are moving lower, while the

economy continues to chug along."

Separate data, in an advanced estimate, showed Canadian

manufacturing sales rising 0.2% in May from April.

The interest rate sensitive real estate sector

was down 0.8%, while consumer discretionary ended

1.6% lower.

The materials group, which includes metal miners

and fertilizer companies, fell 1%, as gold and copper

prices lost ground.

The price of oil also dropped, settling nearly 1%

lower at $80.83 a barrel, which weighed on the energy sector

. It fell 0.5%.

Technology was a bright spot, rising 1.2%, and the

defensive consumer staples sector added 0.8%.