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* C$ at C$1.0315 vs US$, or 96.95 U.S. cents * Touches C$1.0337 shortly after Bank of Canada decision * Rates on hold for "a period of time"-central bank * Pace of purchasing activity in Canada slowed in Feb * Jobs data on Friday next major event eyed By Alastair Sharp TORONTO, March 6 (Reuters) - The Canadian dollar weakened against the U.S. dollar to test but not break recent eight-month lows on Wednesday after the Bank of Canada held interest rates steady and softened its stance on the need for tighter monetary policy. The loonie, as Canada's currency is colloquially known, weakened sharply immediately after the central bank news, before trimming some of those losses in afternoon trade. "You had that knee jerk reaction ... I think it was exaggerated a little too much," said David Bradley, a director of foreign exchange trading at Scotiabank. The central bank said it will likely hold its benchmark rate steady for "a period of time," a tweak from the language used in January that said a rate hike was "less imminent". The central bank held its overnight lending target unchanged - as widely expected - at 1.0 percent, where it has been since September 2010. "They haven't completely disbanded the very mild tightening bias, but they have found a way to split the hair a little bit further," said Doug Porter, chief economist at BMO Capital Markets. The Canadian dollar ended the day trading at C$1.0315 versus the U.S. dollar, or 96.95 U.S. cents. It had softened to C$1.0337, stopping short of breaching the 8-month low of C$1.0343 it hit on Friday, just after the central bank's policy announcement, after closing the North American session on Tuesday at C$1.0280. The loonie would likely now trade between C$1.0290 and C$1.0340 until the release of employment data due on Friday, Bradley said. "If we get soft employment data, as we did last month, then you're going to see another knee jerk reaction and probably easily take out that C$1.0350 level," he said. Canada's economy unexpectedly shed jobs in January while a Reuters poll shows forecasters expect a modest addition of 8,000 jobs in February. In other data, the pace of purchasing activity in Canada slowed in February for the second straight month, according to the Ivey Purchasing Managers Index. The seasonally adjusted index fell to 51.1 in February from 58.9 in January. Analysts polled by Reuters had expected an adjusted reading of 57.5. The figures took a significant back seat to the Bank of Canada announcement. But they did reinforce a concern about slowing growth that has prompted some analysts to turn bearish on the near-term prospects for the currency. Still, a Reuters poll on Wednesday showed forecasters expect the Canadian dollar will recover some of its early 2013 losses and trade at equal value against its U.S. counterpart by the end of this year. Canada's performance was stronger against some other major currencies, outperforming the Japanese yen, the euro and the British pound, but underperforming its commodities-linked sister currency, the Australian dollar . Bond prices were mixed. The two-year bond was up 5 Canadian cents to yield 0.931 percent, while the benchmark 10-year bond fell 30 Canadian cents to yield 1.850 percent.