Toronto stocks erases gains after the Bank of Canada hikes rates to 5%

* BoC hikes rates by expected 25-bps

* U.S. CPI eased to 3.1% in June YoY vs 4% in May

* Materials, energy top gainers

* Laurentian Bank of Canada surges as company to review strategic options

* TSX up 0.5%

July 12 (Reuters) - Toronto's main stock index pared early gains on Wednesday after the Bank of Canada raised interest rate by an expected 25-basis points but the sentiment remained positive after data showed cooling inflation in the U.S.

At 10:18 a.m. ET (1418 GMT), the Toronto Stock Exchange's S&P/TSX composite index was up 105.33 points, or 0.53%, at 19,983.89.

The Canada's central bank hiked its key overnight rate by a quarter of a percentage point to 5.00%, the highest rate since 2001, citing concerns that inflation would stall above its 2% target.

"There are conflicting views coming from the Bank of Canada," said Derek Holt, vice-president & head of capital markets economics at Scotiabank.

"The last time they had to hike (was because) in their view the policy rate was not sufficiently restrictive ... I don't think they are saying this at this meeting."

The loonie further strengthened against the dollar.

Rate-sensitive real estate sector advanced 1.3%.

The materials sector, which houses Canada's major mining companies, added 2.4% as metal prices appreciated on the softer U.S. dollar.

The dollar slid after U.S. consumer prices rose modestly in June and registered their smallest annual increase in more than two years as inflation continued to subside.

Canada's energy sector gained 0.7%, tracking higher oil prices.

Laurentian Bank of Canada jumped 28.9% after the country's ninth largest bank said it is conducting a review of strategic options.

Heavyweight financials added 0.3%.

The TSX has underperformed so far this year, rising over 3% compared to an over 16% rise in the U.S. S&P 500 index, weighed down by volatile commodity prices on a weak demand outlook from top consumer China.

Aritzia tumbled 17.6% after TD Securities downgraded the apparel and accessories retailer to "hold" from "buy".

MTY Food Group rose 3.6% after CIBC raised the restaurant operator to "outperformer" from "neutral". (Reporting by Shashwat Chauhan and Siddarth S in Bengaluru and Divya Rajagopal in Toronto; Editing by Shweta Agarwal)