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OTTAWA, Aug 15 (Reuters) - Canada created 41,700 jobs in July, considerably more than expected, and the unemployment rate dropped to 7.0 percent from 7.1 percent in June, according to revised data Friday from Statistics Canada.
Market analysts had forecast a gain of 20,000 jobs.
Statscan initially reported a week ago that just 200 new positions were created in July, but withdrew the data, citing processing errors.
Even though the numbers were better than predicted, they still reflect a sluggish Canadian economy that has yet to benefit fully from a recovery in the United States, its main trading partner.
The year-over-year employment gain was only 156,800 jobs, or 0.9 percent, while the six-month moving average for employment growth grew to 10,900 in July from 8,800 in June.
The labor force participation rate remained at 66.1 percent, the lowest since the 66.0 percent seen in November 2001.
Paul Ferley, assistant chief economist at Royal Bank of Canada, said the July data suggested "a totally different picture in terms of the employment conditions in July" compared to the initial release.
"Year to date, the gains in employment are still fairly modest. Going forward, hopefully we'll see sustained increases, but at the moment certainly these revised July numbers, it's showing a more encouraging picture, though we're not out of the woods yet," he said.
Statscan said 59,900 part-time positions were created in July, while full-time jobs dropped by 18,100. Due to a human data processing error, the agency initially reported 60,000 new part-time jobs and a loss of 59,700 full-time positions.
In a statement, Statscan's chief statistician Wayne Smith described the July mistake as "an isolated incident" and said he had full confidence in the integrity of the overall labor force survey program.
Separately, Statscan reported the value of Canadian factory sales grew 0.6 percent in June from May, pushed up by the chemical, petroleum and coal product industries.
The increase - the fifth in six months - was greater than the 0.4 percent advance predicted by analysts. Statscan revised May's month-on-month gain to 1.7 percent from 1.6 percent.
Camilla Sutton, chief currency strategist at Scotiabank, said the combined sets of data were promising.
"Job gains are good, and an unemployment rate that is falling with a stable participation rate is also encouraging," she told Reuters.
"You combine in manufacturing sales which was not only stronger than expected but the second upside surprise and last month's was also revised slightly higher. So that too is fairly encouraging in terms of what's transpired in the domestic economy."
The Bank of Canada has kept its key interest rate at a near-record low 1.0 percent since September 2010 and says it will not contemplate a hike until the economy shows signs of a sustained recovery.
Additional reporting by Leah Schnurr and Allison Martell in Toronto; Editing by Bernadette Baum