* Canada economy creates 42,900 new jobs in March
* Unemployment rate dips to 6.9 percent from 7.0 percent (Adds PMI data, U.S. employment figures, quotes)
By Louise Egan
OTTAWA, April 4 (Reuters) - Canada's economy churned out twice as many new jobs as expected in March and the unemployment rate dropped a notch, but most of the gains were in the public sector and part-time positions, a sign businesses were still cautious about hiring.
The report adds to recent data showing the economy is strengthening after a weak patch in December and at the start of 2014, but it is unlikely to knock the Bank of Canada off its neutral stance on interest rates, analysts said.
Statistics Canada reported on Friday the job market added 42,900 net new positions in the month, compared with market expectations of 20,000. The jobless rate dipped to 6.9 percent from 7.0 percent.
In a separate report, the Ivey Purchasing Managers Index showed the pace of purchasing activity slowed in March and the employment measure contracted.
The news of strong North American hiring - U.S. nonfarm payrolls jumped by 192,000 new jobs last month - helped push the Canadian dollar to its highest in nearly a month.
But the jobs numbers are volatile from month to month, and analysts warned that it was premature to proclaim all was rosy after a slow spell.
"One month does not a trend make because this came after a long stretch of non-existent hiring," said Avery Shenfeld, chief economist at CIBC World Markets.
"We still have some catch-up to do then for employment to match up with economic growth over the prior year," he said.
The six-month moving average for employment growth stood at 9,700 in March, up from 3,400 in February but at a level still considered sluggish. Overall, the pace of job creation in Canada has been slowing, averaging 8,300 per month in 2013, less than one-third of the 2012 average.
The Canadian dollar firmed to C$1.10974 to the U.S. dollar, or 90.11 U.S. cents, compared with Thursday's close of C$1.1039 to the greenback, or 90.59 U.S. cents.
The headline jobs growth for Canada looked better than the details, in contrast to February's report which showed 7,000 job losses but solid full-time employment.
In March, 30,100 Canadians obtained part-time jobs while only 12,800 won full-time positions. The public sector added some 39,300 workers to its payrolls compared with 3,900 in the private sector.
The biggest gains were in health care and social assistance, and in business, building and other support services. Agriculture lost 12,400 jobs.
In the year to March, the economy generated 190,000 jobs, of which 137,000 were full-time.
"Overall this is good news for the economy," said Doug Porter, chief economist at BMO Capital Markets, adding that the latest gains lift year-over-year employment growth to around 1 percent.
"I think (the Bank of Canada) will be encouraged by this number. I don't believe it moves the needle significantly. As I've said before, I do think this quashes talk of rate cuts, at least for now," said Porter.
The Bank of Canada has held its main interest rate at 1.0 percent for more than three years and since last October has adopted a slightly more dovish tone but declared itself "neutral" on rates.
On April 16, central bank chief Stephen Poloz gets his next chance to update the bank's outlook on the economy and signal any bias towards a rate cut or rate hike.
Finance Minister Joe Oliver said he was pleased with the report but was not resting on his laurels.
"While these gains are positive, we must continue to focus on jobs and the economy with the global economy remaining fragile," he said in an emailed statement.
More than 30,000 jobs went to youth aged 15-24, with employment gains little changed for those 25 years and over. Youth unemployment was unchanged though, at 13.6 percent.
Hourly wages for permanent employees, closely watched by the Bank of Canada for signs of inflation, rose 2.4 percent in the year to March compared 2.7 percent in February. (Additional reporting by Alex Paterson, Andrea Hopkins and Leah Schnurr; Editing by Bernadette Baum and Meredith Mazzilli)