July 10, 2015 / 12:40 PM / in 2 years

UPDATE 2-Canada sheds fewer jobs than expected in June

(Adds market reaction, analyst comment)

By Leah Schnurr

OTTAWA, July 10 (Reuters) - Canada's economy shed a fewer-than-forecast 6,400 jobs last month, data from Statistics Canada showed on Friday, prompting investors to pare back expectations that the Bank of Canada will cut interest rates next week.

Economists had anticipated a loss of 10,000 jobs in June. The unemployment rate held steady at 6.8 percent, though the participation rate edged down to 65.8 percent.

A disappointing economic outlook in recent weeks has raised expectations the Bank of Canada could cut its main polcy rate to 0.5 percent when it makes its decision on July 15. The central bank unexpectedly reduced rates in January to guard against the impact of the drop of the price of oil, a major export for Canada.

But Friday's jobs figures saw traders reduce their bets of a rate cut next week to a 43 percent probability from the 51 percent odds they had been pricing heading into the report. The Canadian dollar strengthened to a session high against the greenback immediately following the report.

Economists said the report presented a mixed picture, with full-time employment and wages rising, but private sector hiring decreasing.

"It leaves us with a sense that the pace of hiring on a longer-term basis is reasonably modest and consistent with conditions in the wider economy," said David Tulk, chief Canada macro strategist at TD Securities.

A gain of 64,800 full-time jobs was more than offset by a loss of 71,200 part-time positions. Both the overall goods and services sectors declined, including a drop of 16,800 jobs in the other services category, which includes positions in personal and laundry services.

Recent data, including a decline in growth in April and weak exports in May, has suggested the economy struggled at the start of the second quarter, potentially setting Canada up for a technical recession after first-quarter growth contracted.

The pace of jobs growth slowed to an increase of 32,800 jobs in the second quarter, softer than the first quarter's 63,100 pace, Friday's report showed. The increase in the second quarter came solely from full-time jobs.

The natural resources sector, which has been hurt by the drop in oil prices, added 3,500 jobs, though the manufacturing industry cut 7,200 positions. (Additional reporting by Solarina Ho, Susan Taylor and John Tilak in Toronto Editing by W Simon)

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