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* C$ drops to C$1.0367 after weak Canadian jobs report
* Bonds lower ahead of U.S. jobs report
By Jennifer Kwan
TORONTO, Jan 8 (Reuters) - The Canadian dollar fell against the U.S. currency on Friday morning after domestic employment data surprised the market with a small loss in December.
The report showed Canada's labor market recovery stalled last month, unexpectedly losing 2,600 jobs after hefty gains in November, according to Statistics Canada data released on Friday. [ID:nN08233091]
"The gain on employment (was) weaker than expected so likely near-term to put some downward pressure on Canada as it suggests the Bank of Canada is going to be in no rush to start tightening interest rates," said Paul Ferley, assistant chief economist, Royal Bank of Canada.
The unemployment rate held steady at 8.5 percent, as forecast in a Reuters poll. The job losses, which followed a gain of 79,000 jobs in November, are small enough to be considered a flat reading, but disappointed the market consensus for a 20,000 increase.
At 7:31 a.m. (1231 GMT), the Canadian dollar was at C$1.0367 to the U.S. dollar, or 96.46 U.S. cents, down from Thursday's North American finish at C$1.0350 to the U.S. dollar, or 96.62 U.S. cents.
The Canadian dollar fell as low as C$1.0386 or 96.28 U.S. cents, from C$1.0314 or 96.96 cents just before the report. On Thursday it had hit a 2 1/2 month high of C$1.0291, or 97.17 U.S. cents.
"We've become used to high-side surprises for Canadian employment over the last six months so it'll be a bit of a disappointment for the Canadian dollar, but I think the non-farm payroll report today is probably going to be the bigger driver," said Doug Porter, deputy chief economist, BMO Capital Markets.
U.S. jobs figures due at 8:30 a.m. (1330 GMT) are expected to show the economy stopped shedding jobs last month for the first time since it slid into recession two years ago. [ID:nN0747110]
"(The U.S. jobs data) could have greater bearing in terms of how foreign exchange markets trade via impact on the U.S. dollar," said Ferley.
The price of oil [O/R], a key Canadian export, slipped to around $82.50 a barrel, while gold prices also softened. [GOL/]
Canadian bond prices were lower, following U.S. Treasuries where prices fell in Europe on Friday as markets held their breath ahead of U.S. payrolls data expected to show an improvement in the labour market. [US/]
Still, the yield on the 2-year Canadian government bond fell to 1.401 percent from 1.412 percent just before the Canadian data came out. (With additional reporting by Claire Sibonney; Editing by Jeffrey Hodgson)