* Yen extends rally, touches fresh 17-month high
* Canadian dollar bulls pin hopes on rallying oil prices
* No reaction to China inflation data
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, April 11 (Reuters) - Demand for the yen showed little signs of abating on Monday, with the currency reaching a fresh 17-month high, prompting the Japanese government to warn that it could take steps to weaken the exchange rate.
Chief Cabinet Secretary Yoshihide Suga told a news conference the government was closely monitoring the foreign exchange market with a sense of urgency, noting the yen moves were one-sided and speculative. dollar fell as far as 107.63 yen JPY= , surpassing last week's trough of 107.67 and extending last week's 3.3 percent drop. It has since drifted back to 107.91, down 0.2 percent on the day.
Analysts said part of the reason for the yen's eye-catching rally was due to the unwinding of very bearish positions as investors gave up on a hike in U.S. interest rates this year.
"If there are clearer signs that a rate hike by the Federal Reserve is imminent, the dollar/yen could find a bottom. But it seems like that has to wait for some time," said Masatoshi Omata, senior client manager of forex trading at Resona Bank.
The unwelcome gain in the yen has increased the pressure on Japanese authorities to take steps to deal with it.
Japan's top government spokesman said the Group of 20's agreement to avoid competitive currency devaluation does not mean Japan cannot intervene in response to one-sided currency moves. many traders say verbal intervention would have limited impact given that the yen is hardly strong at current levels.
Credit Suisse (SIX:CSGN) said the yen was still "rather cheap" by valuation even after last week's surge, with its currency matrix putting the long-term fair value near 90.00.
"It will be difficult for the BOJ to sell the JPY as it is deemed as undervalued," said Koon How Heng, an FX analyst at Credit Suisse.
The euro bought 122.95 yen EURJPY=R , having shed 3.1 percent last week while the sterling fell to 152.08 yen GBPJPY= , near 2 1/2-year low of 151.88 touched on Thursday.
Against the greenback, the common currency stood at $1.1410 EUR= , not far from a six-month peak of $1.1454.
Another currency in favour is the Canadian dollar, which posted its best weekly performance in over three weeks on Friday as oil prices jumped.
The loonie was last at C$1.2993 per U.S. dollar CAD=D4 , not far off a one-week high of C$1.2952 set on Friday.
U.S. crude CLc1 is up over 0.3 percent early on Monday, extending Friday's 6.6 percent surge on hopes that global oversupply may be approaching a tipping point after nearly two years.
Currencies showed muted a response to data showing China's consumer price inflation was less than expected in March, flattening out after a four-month strengthening trend.