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OTTAWA (Reuters) - A record number of Canadians returned to work in April, stunning markets and adding pressure on the Bank of Canada to raise interest rates in June, ahead of other major industrialized countries.
Job gains soared past all forecasts to total 108,700 in the month, the highest number since Statscan began tracking the data in 1976, and exceeding even the most optimistic estimate in a Reuters poll, which yielded a median forecast of 25,000 new jobs. The percentage increase, at 0.6 percent, was the largest since August 2002.
The data showed private business, not government, did the hiring for a second straight month.
The Canadian dollar shot up to a high of C$1.0338 to the U.S. dollar, or 96.73 U.S. cents, compared with its close on Thursday of C$1.0523 to the U.S. dollar.
"I think this is fantastic news ... It's just another sign that the Canadian economy is doing better than anyone could have hoped at the start of the year," said Steve Butler, director of foreign exchange trading at Scotia Capital.
The report reminded investors of Canada's upbeat recovery after days of market gyrations over the Greek debt crisis and fears it could spread to other euro zone countries.
"If anybody was in doubt that interest rates were going higher and that they need to be normalized, I think that doubt is no longer with us ... this is consistent with a rising-rate environment, and that process is going to begin soon," said Craig Wright, chief economist at Royal Bank of Canada.
The central bank took a first step last month toward tightening monetary policy by removing a commitment to keep rates at a rock-bottom 0.25 percent until the end of June.
In a Reuters poll on Friday after the jobs report, Canada's 12 primary securities dealers unanimously predicted the bank will lift rates to 0.50 percent on June. 1. In the previous poll on April 20, 11 had forecast a first move in June.
But some said they would put a "massive asterisk" beside their forecasts given European debt woes and recent volatility on financial markets.
That uncertainty has led to rapidly changing expectations for monetary policy, as reflected in yields on overnight index swaps. Just before the jobs data Friday, rate futures priced in only a 39.7 percent probability of a June rate hike but that jumped to 65.4 percent by Friday afternoon.
"Just as the rolling European crisis looked like it could ice the Bank of Canada for a spell, the domestic economy has served a rather loud warning that it needs tending as well," said Doug Porter, deputy chief economist at BMO Capital Markets.
The economy grew at a sizzling 5 percent annualized rate in the fourth quarter and is expected to match that pace in the first quarter of 2010.
But even in fiscally solid Canada, the shaky outlook for Europe has people on edge and Bank of Canada Governor Mark Carney's next move is not at all obvious.
"On the one hand, if the economy is relatively strong, he might want to go. On the other hand, we have big strong clouds in Europe which could be a force in the opposition direction. So that is a decision for Mark Carney," said John McCallum, a liberal legislator and a former bank economist.
Since the labor market began recovering last July, 285,000 workers have been added to payrolls -- still short of the 417,000 jobs lost between October 2008 and July 2009.
The services sector continued to generate more employment than the goods-producing category in April, led by wholesale and retail trade as well as business, building and other support services. Hiring in the goods sector was weakened by the loss of 20,600 factory workers.
Employment growth was up in both full-time and part-time work and concentrated among men between ages 25 and 54, Statscan said.
The average wage of permanent employees, watched by the Bank of Canada for inflation pressures, rose 2.3 percent in April from a year earlier, down from 2.5 percent in March.
Additional reporting by Jennifer Kwan and Euan Rocha; editing by Rob Wilson