* TSX ends down 0.3% at 21,788.48

* Bond yields climb on inflation surprise

* Annual rate of CPI rises to 2.9%

* Consumer discretionary falls 1.6%

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%. (Reporting by Fergal Smith in Toronto and Nikhil Sharma in Bengaluru; Editing by Vijay Kishore and Alistair Bell)