* Says inflation situation relatively modest in Canada
* Europe sovereign debt crisis still volatile
* Euro crisis doesn't change pressure for yuan flexibility
By Jane Lee and Farah Master
(Updates throughout)
SHANGHAI, June 2 (Reuters) - Canada expects its economy to grow by 3.3 percent in 2010, Finance Minister Jim Flaherty said on Wednesday, adding that inflation remained a concern and might eventually force additional interest rate hikes.
"There is no firm plan to go forward this year with respect to interest rates. We just have to watch and wait and see," Flaherty told Reuters Insider in an interview in Shanghai.
"We have a relatively modest situation in Canada, but interest rates have been very low. They couldn't really be any lower, so people should expect over time that interest rates will go up and that there are inflationary pressures over time."
He said Canada's gross domestic product was expected to grow 3.3 percent this year, up from an expectation of about 2.9-3.0 percent previously.
The Bank of Canada raised its key interest rate on Tuesday, the first G7 industrialised economy to do so after the global recession, but it said the European debt crisis made its next move highly unpredictable.
The rate hike, to 0.5 percent from 0.25 percent, was a response to two quarters of extraordinarily strong growth.
Flaherty added that the euro zone's debt crisis was still volatile but noted it had not changed pressure on China to let the yuan become more flexible.
"In order to increase trade and create wealth, flexibility in currencies has proven to be beneficial for those currencies that permit flexibilities."
EURO CRISIS TOP PRIORITY AT G20
Flaherty, who was in Shanghai to visit Canada's pavilion at the World Expo, said the euro zone crisis would be the top topic of discussion at the G20 summit, with key issues including monetary policy, sustainable growth and financial sector reform.
"The concern is that Europeans make sure they fix their banks, to put it bluntly," Flaherty said.
"Those countries that are vulnerable need to proceed with fiscal consolidation plans, get them done, get whatever parliamentary approvals they need so Europe can get back on a firm footing."
Flaherty added that while Canada was in a strong economic position compared to its G7 counterparts it would continue to monitor Canadian household debts.
"We watch Canadian household debt carefully. It is manageable. There is no evidence of a housing bubble in Canada."
(Editing by Ken Wills)