* C$ weaker as oil drops toward $41 a barrel, metals drop
* Bonds largely lower as supply concerns persist
By Jennifer Kwan
TORONTO, Jan 29 (Reuters) - Canada's dollar weakened against the U.S. dollar on Thursday but traded in a relatively tight range, as the price of oil dropped on heightened demand concerns and metals prices also weakened.
For most of the morning, the Canadian unit was pressured by slumping commodity prices [ID:nN27479179], but the currency rose slightly following the release of U.S. economic data that showed jobless rolls shot up to a record in mid-January, while new orders for durable goods plummeted in December. [ID:nN29272638]
"The cloud has darkened over the U.S. economy and that may have undermined the U.S. dollar a little bit since those numbers came out, providing a little bit of support for the Canadian dollar," said Michael Gregory, senior economist at BMO Capital Markets.
Shortly after, however, the Canadian currency fell back again as commodities weighed.
At 9:57 a.m. (1457 GMT), the Canadian dollar was at C$1.2166 to the U.S. dollar, or 82.20 U.S. cents, down from Wednesday's close of C$1.2152 to the U.S. dollar, or 82.29 U.S. cents.
Domestic bond prices dropped as supply concerns continued to pressure the more secure government debt.
Canada's dollar closed higher on Wednesday as oil prices rose and the country's Conservative government avoided defeat in Parliament over its budget. But the currency fell from session highs after a market-moving U.S. Federal Reserve statement.
The Fed allayed market concerns when it suggested it would do everything it could to lift the economy out of recession and may even buy long-term government debt.
The Canadian currency is trading in a relatively tight range so far on Thursday as the market digests events that took place this week, said Gregory.
That includes Tuesday's release of the federal budget that promises billions in tax cuts and spending a speech from Bank of Canada Governor Mark Carney, who tried to allay concerns about deflation, he added.
Canadian bond prices were largely flat to lower across as the broader concern of swelling supply weighed on both sides of the border.
The overall tone in bond markets "remains a little nervous because of increased supply tied to deficits," said Mark Chandler, fixed income strategist RBC Capital Markets.
In unveiling its budget on Tuesday, the federal government estimated it will run a C$85 billion budget deficit over five years. The deficit for the fiscal year beginning in April will mark Canada's first in about a decade.
In Canada, data on Thursday showed that industrial product prices and raw materials prices dropped [ID:N29397459] but the reading is expected to have a negligible impact on the market, added Chandler.
The two-year bond fell 3 Canadian cents to C$102.46 to yield 1.382 percent, while the 10-year bond dropped 2 Canadian cents to C$110.33 to yield 2.973 percent.
The 30-year bond retreated 5 Canadian cents to C$122.15 to yield 3.727 percent. In the United States, the 30-year Treasury yielded 3.4412 percent. (Reporting by Jennifer Kwan; Editing by Frank McGurty)