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* C$ ends at C$1.0027 vs US$, or $0.9973
* Hits lowest level since January, seen weakening further
* Bond prices rally, outperform Treasuries
* Canada's economy sheds 21,900 jobs in January
By Alastair Sharp
TORONTO, Feb 8 (Reuters) - The Canadian dollar slid to a one-week low on Friday after data showed Canada unexpectedly lost jobs in January and housing starts were much lower than forecast, spurring traders to reduce bets that interest rates would go up this year.
Canada's economy shed 21,900 jobs last month, a sharp pullback from several months of oversized gains. Separate data showed Canada posted a record trade deficit last year and housing starts hit their lowest since mid-2009, when the market was sideswiped by the global financial crisis.
The data put more pressure on the loonie, as Canada's dollar is colloquially called, which fell below parity with the U.S. currency for the first time this week. It breached that level for much of late January after the Bank of Canada said its next rate increase was "less imminent."
"Where this does become significant is you pair it (Friday's data) with significant change in tone from the Bank of Canada (last month) ... and now all of a sudden we've got an environment where the Canadian dollar looks fundamentally weak, compared to where we were before," said Mark Frey, chief market strategist at Cambridge Mercantile Group.
The currency ended at C$1.0027 versus the greenback, or 99.73 U.S. cents, down from Thursday's North American session close of C$0.9980, or $1.0020.
Frey expects the loonie to test the C$1.02 level in the next two to three weeks and remain weaker than the greenback for most of the next two months.
Market analysts had forecast a gain of 5,000 jobs after strong gains in three of the previous four months.
"Clearly the 300,000 jobs creation last year was unsustainable and we have to brace ourselves for something more sustainable this year," said Stefane Marion, chief economist at National Bank Financial.
"You might have to reassess your growth expectations for the domestic economy this year, which means, in my view, that the Bank of Canada remains on the sideline through this year and no move before early 2014."
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders lowered their already small bets on a rate increase in late 2013 after the data was released.
Marion forecast the Canadian dollar can weaken 3 or 4 more cents from current levels.
"From a Canadian perspective what will really start to transpire over the next two months is the downshift in domestic demand, particularly the construction sector," he added, noting the country's cooling housing sector.
Canadian government bond prices rallied across the curve following the disappointing economic indicators, outperforming U.S. Treasuries.
The price of a two-year bond was up 9 Canadian cents to yield 1.111 percent and the benchmark 10-year bond gained 28 Canadian cents to yield 1.963 percent.