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TORONTO (Reuters) - The Canadian dollar finished modestly firmer against the U.S. dollar on Thursday, paring gains after briefly touching a one-month high, as investors turned their attention to employment data from Canada and the United States expected on Friday.
The currency crept to its strongest level since early November in late morning trade, extending gains made over the last two days after the Bank of Canada kept its bias towards future rate hikes earlier in the week.
Canada's central bank was unwavering in its view that it may need to raise interest rates, not cut them, even as the country's economy shows signs of slowing.
The slowing growth was reaffirmed after data showed purchasing activity in Canada fell in November and building permits data showed the value of residential permits -- a steadier measure than non-residential permits -- fell for the third time in four months.
The Canadian dollar finished the North American session at C$0.9911, or $1.0090 U.S. cents, slightly stronger than Wednesday's session close of C$0.9917, or $1.0084.
The currency, which has been trading between C$0.9962 and 0.9906 for the last two weeks, briefly broke through C$0.9900. It touched C$0.9892 vs the U.S. dollar, or $1.0318, its strongest level since November 7.
"Overall, it still feels like the market is unsure in which direction to take USD/CAD," said Gareth Sylvester, director at Klarity FX.
The Canadian dollar's performance was mixed against a basket of other major currencies. It underperformed its fellow commodities-linked Australian and New Zealand dollars, but outperformed the euro, where it hit its strongest level in more than a week.
The euro was on track for its sharpest drop against the U.S. dollar in a month after comments from European Central Bank chief Mario Draghi, a downgrade to the region's growth and inflation forecasts boosted expectations of an interest rate cut.
The ECB kept interest rates on hold at a record low 0.75 percent as expected and predicted the euro zone economy would shrink again in 2013.
"It was more euro sell-off than anything else after the ECB and Draghi comments," said Matt Perrier, director of foreign exchange sales at BMO Capital Markets.
"A part from those moves, (the Canadian dollar) settled back into the middle of the range there and quieted down quite significantly since London packed things up for the day."
Many analysts attribute the recent limited moves in Canada's dollar to uncertainty over whether U.S. lawmakers can agree on a fiscal plan to avert $600 billion in tax hikes and spending cuts set to begin next year. If left unresolved, economists fear the United States could go into recession.
"I think the broader financial markets are taking their trading cues from that event risk," said Sylvester.
"If we get a resolution to the U.S. 'fiscal cliff' then that might be what introduces some confidence into equity markets. It's been such a close correlation between equity markets and the U.S. dollar."
Looking ahead, markets are also focusing on Friday's November employment reports from both Canada and the United States. Economists expect the United States to have added 93,000 jobs and Canada to have added 10,000 jobs.
Canadian bond prices were mixed, with the two-year bond rising half a Canadian cent to yield 1.041 percent, and the benchmark 10-year bond down 3 Canadian cents to yield 1.688 percent.
Reporting by Claire Sibonney; Editing by Leslie Gevirtz