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TORONTO (Reuters) - Canada's dollar dipped slightly against its U.S. counterpart on Thursday, weighed by soft North American data and retreating commodity prices.
A report showed new U.S. claims for jobless benefits moved higher last week, though a decline in the four-week average to a nearly 2-1/2-year low suggested the trend toward a better labor market remains intact.
It was followed by a report that showed Canadian purchasing activity stalled in December.
The Canadian currency had benefited from increased optimism about the U.S. economic recovery, which was boosted by surprisingly firm private employers jobs data out this week. The United States is Canada's largest trading partner and a pickup in demand there could boost the export sector.
Still, the Canadian dollar finished above parity with the U.S. dollar for a fourth straight session, ending at C$0.9969 to the U.S. dollar, or $1.0031. This compared with Wednesday's close at C$0.9964 to the U.S. dollar, or $1.0036.
Analysts said the market was now firmly focused on U.S. and Canadian jobs data out on Friday.
"The market has taken back some of the long Canada positions ahead of tomorrow's payroll numbers," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
A drop in commodity prices -- with oil off more than 2 percent to below $89 a barrel -- also temporarily put a lid on the Canadian dollar's gains, said Spitz.
He said the Canadian dollar could extend its recent rally should the domestic employment figures come in at or above expectations. The Canadian dollar has traded above parity for the last eight sessions.
Activity against other major currencies has also been notable, analysts say.
"If North American consumer growth or economic growth is going to be stronger, then that provides some optimism for the export environment vis-a-vis Canada, and that's helping the currency," said Jeremy Stretch, head of currency strategy at CIBC World Markets in London.
"But I think it's more the case that Canada is going to gain more traction against some of the crosses,"
Stretch said performance against the euro and Australian dollar should be particularly interesting in the near term due to negative structural issues in Europe and Canada's recent lag against its Aussie commodity counterpart.
Canadian bond prices drifted higher, tracking U.S. Treasuries up, with yields coming off highs reached the previous day after the strong jobs data.
A risk-off sentiment prevailed as stock markets retreated on the poor economic data, which also included disappointing December sales from some top U.S. retailers.
The two-year bond rose 4 Canadian cents to yield 1.742 percent, while the 10-year bond added 45 Canadian cents to yield 3.224 percent.
Statistics Canada will release the employment data Friday at 7 a.m. (1200 GMT). The average forecast in a Reuters poll was for more modest job growth in December of 17,500 as the pace of hiring slowed from earlier in the year.
U.S. employers likely stepped up hiring in December, with expectations of 140,000 jobs created, after adding a meager 39,000 jobs in November.
With additional reporting by Claire Sibonney; editing by Jeffrey Hodgson