* C$ at C$0.9819 to the U.S. dollar, or $1.0184
* Short-dated bonds rise
* Odds rise of rate cuts in October and December
By Ka Yan Ng
TORONTO, Aug 5 (Reuters) - Canada's dollar pared losses against the U.S. currency on Friday morning after encouraging Canadian jobs data, but overarching worry about a slowing global economy weighed.
Canada's unemployment rate fell to 7.2 percent in July, its lowest level since December 2008, from 7.4 percent in June, though this was more due to people dropping out of the labor market than to new employment.
Statistics Canada said the economy managed to eke out 7,100 new jobs while holding on to the 28,400 jobs that were picked up in June.
The increase was less than half that expected in a Reuters survey of analysts but was marked by a healthy switch to full-time and private-sector employment. [ID:nN1E77404O]
In response, the Canadian dollar CAD=D4 rose as high as C$0.9801 to the U.S. dollar, or $1.0203, after the data, rising about 25 ticks and not quite able to climb above its overnight high at C$0.9774.
At 8 a.m. (1200 GMT), the currency was at C$0.9819 to the U.S. dollar, or $1.0184, below Thursday's North American session close at C$0.9795 to the U.S. dollar, or $1.0209.
"For the financial markets and the Canadian dollar this is pretty much a neutral report," said Doug Porter, deputy chief economist at BMO Capital Markets.
"It's enough to stave off further selling in the Canadian dollar, but what will really drive the currency right now is the mood of the broader financial markets and of course the U.S. jobs report."
The key U.S. jobs report on monthly non-farm payrolls and the employment rate, due at 8:30 a.m. EDT (1230 GMT), will give clues on the extent of the weakness in the economy following a string of dismal macroeconomic data.
Economists see payrolls up by 85,000, according to a Reuters survey, after a tepid 18,000 gain in June. The unemployment rate was expected to hold steady at 9.2 percent. [ID:nN1E77115Y]
Short-dated goverment bonds surged in a flight to safety as concern ballooned over the slowing global economy and the spread of debt anguish into Italy and Spain and world stocks sank for an eighth straight session. [MKTS/GLOB]
The soft headline on the Canadian jobs report also helped interest-rate sensitive issues, with expectations shifting towards later rate hikes, or now the possibility of a rate cut.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders priced in higher odds of rate cuts in October and December after the data. The market began pricing in the prospect of monetary easing after markets began tumbling this week. BOCWATCH
"I would imagine that we would see the consensus shift even though the market price is way beyond that, but to the economists, I would expect their forecasts to start to move towards somewhat closer to where we are," said Shaun Osborne, chief currency strategist at TD Securities.
TD sees a rate hike in 2012, while the average view, according to a Reuters poll on July 20, expect the central bank to raise interest rates before year end. [CA/POLL]
Reporting by Ka Yan Ng, Claire Sibonney, and Euan Rocha, Editing by Chizu Nomiyama