* Canadian dollar gains 0.2% against the greenback * Canada"s annual inflation rate accelerates to 3.7% in July * Price of U.S. oil increases 0.8% * Canadian bond yields rise across a steeper curve TORONTO, Aug 18 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as oil prices rose and domestic data showed inflation climbing at the hottest pace since 2011, with the currency recovering from a near four-week low the day before. Canada"s annual inflation rate accelerated to 3.7% in July, up from 3.1% in June, due to both the base-year effect and higher shelter costs. Analysts had expected inflation to rise to 3.4%. The Bank of Canada says that the factors pushing up inflation are transitory but their persistence and magnitude are uncertain and will be monitored closely. The price of oil, one of Canada"s major exports, rose after four days of declines. Investors have worried about the outlook for fuel demand as the use of rail, air and other forms of transport is constrained by surging COVID-19 cases worldwide. U.S. crude oil futures rose 0.8% to $67.11 a barrel, while the Canadian dollar was trading 0.2% higher at 1.2604 to the greenback, or 79.34 U.S. cents. On Tuesday, it touched its weakest level since July 21 at 1.2648. The focus on Wednesday will also be on the minutes of the Federal Reserve"s last policy meeting. Analysts expect the Fed to announce its plan for a "taper" of its asset purchases as early as its Sept. 21-22 meeting. Canadian government bond yields were higher across a steeper curve. The 10-year rose 1.1 basis points to 1.166%, after touching on Tuesday its lowest intraday level in nearly two weeks at 1.120%. (Reporting by Fergal Smith; editing by Barbara Lewis) Our Standards: The Thomson Reuters Trust Principles.