CANADA FX DEBT-C$ pares gain as Greek fears undercut job data
* C$ ends at C$0.9670 vs US$, or $1.0341
* C$ tracks weakness in euro after Greece reports
* Canada added 58,300 jobs; beating expectations
* Oil prices post biggest weekly loss on record
* Bond prices soften; Canada underperforms Treasuries (Updates to close, adds weekly figures)
By Claire Sibonney
TORONTO, May 6 (Reuters) - Canada's dollar edged higher against the U.S. currency on Friday, but lost most of its big early gains as it tracked a sliding euro.
The euro tumbled against the greenback after a report, later denied, that suggested Greece was considering leaving the euro zone. Other risk-related currencies such as the Canadian dollar were dragged down with the euro. [FRX/]
The Canadian currency had made solid gains earlier in the session, triggered by unexpectedly strong Canadian and U.S. jobs data.
Spiegel Online reported that euro zone finance ministers were meeting in Luxembourg on Friday to discuss Greece, including the issue of its possible exit from the currency bloc. The Greek finance ministry, however, denied the country had raised the possibility of leaving the euro zone. [ID:nATH006056]
"Euro has had a tough week as it is," said Shane Enright, executive director of foreign exchange sales at CIBC, referring to less hawkish than expected comments from European Central Bank President Jean-Claude Trichet on Thursday that spurred a drop in the currency.
"These comments (about Greece) have only served to further add to the pressure despite the denial from Greek officials," Enright said. "That's added to the risk-off tone that we've seen earlier in the week and probably nullified to a degree what were very good North American job numbers."
Both Canada and the United States created far more jobs than expected in April. Canada's data -- net job creation of 58,300 -- signaled solid economic growth in the second quarter and reinforced forecasts of interest rate hikes later this year. [ID:nN06160819] [ID:nOAT004799]
The Canadian dollar rallied as high as C$0.9573 to the U.S. dollar, or $1.0446, following the jobs data.
But it soon succumbed to safe-haven U.S. dollar strength and volatile trading in commodity markets as oil prices extended losses following a 10 percent plunge on Thursday. Crude prices put in their biggest weekly loss on record this week. [O/R]
CARNEY COMMENTS ON C$
Also weighing on the Canadian dollar, Enright said, was a reminder from Bank of Canada Governor Mark Carney that the currency's robustness has sapped some of the country's manufacturing competitiveness. [ID:nWAT015097]
The Canadian dollar CAD=D4 ended the North American session at C$0.9670 to the U.S. dollar, or $1.0341, up slightly from Thursday's finish of C$0.9682 versus the U.S. dollar, or $1.0328. It was off 2.3 percent for the week.
Enright said Thursday's low of C$0.9713 against the U.S. dollar, or $1.0295, would offer near-term support for the Canadian dollar, with significant buying interest coming in at C$0.9690, or $1.03199.
Elsa Lignos, G10 currency strategist at RBC Capital Markets in London, said the Canadian dollar's play as a North American currency would benefit it, underpinned by employment strength on both sides of the border.
"We still favor long CAD positions, particularly as we head into the May 31 Bank of Canada meeting, where we think they're going to start laying the ground for hikes beginning in July," Lignos said.
Overnight index swaps, which trade based on expectations for the key central bank rate, showed investors slightly increasing bets on rate hikes in 2011 after the Canadian jobs data was published. BOCWATCH
Canadian bond prices cut some of their earlier losses -- mimicking U.S. Treasuries as risk aversion seeped back into the market -- but still ended lower. [US/]
The two-year Canadian government bond CA2YT=RR was off 3 Canadian cents to yield 1.672 percent, while the 10-year bond CA2YT=RR was down 8 Canadian cents to yield 3.201 percent.
Canadian bonds mostly underperformed Treasuries, especially at the short end of the curve. Canada's two-year bond yield was 111 basis points above its U.S. counterpart, compared with 108 basis points on Friday. (Editing by Peter Galloway)
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