CANADA FX DEBT-C$ slightly firmer after trade deficit narrows

* C$ at C$1.0302 to US$, or 97.07 U.S. cents

* Canada trade deficit narrows while U.S. balance widens

* Jobs data on Friday eyed for next direction

TORONTO, March 7 (Reuters) - The Canadian dollar strengthened marginally on Thursday after data showed Canada’s trade deficit narrowed in January as exports grew at a faster rate than imports.

That compared favorably with a widening trade deficit in the United States, Canada’s largest trading partner by far.

“The combination of data points, if you look at the two trade balances, did favor a softening in dollar/CAD,” said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.

The Canadian dollar initially weakened to C$1.0317 to the U.S. dollar, or 96.93 U.S. cents, following the release of the latest data. But it then firmed to C$1.0302. It had closed at C$1.0315 versus the U.S. dollar on Wednesday.

Stretch said he was not convinced that the Canadian dollar’s gain on the data was “durable.”

If North American jobs data due out on Friday diverge drastically - with U.S. numbers buoyant and Canadian tepid - the loonie could head towards its weakest 2012 level of around C$1.0450, he said.

“I wouldn’t say it’s a perfect storm but certainly there is a building level of negativity that does suggest the Canadian dollar will continue to underperform at least in the near term,” he said.

Many currency strategists have turned more bearish on the Canadian dollar in recent weeks, concerned by data showing a cooling housing market and slower growth.

Other data on Thursday showed the value of Canadian building permits edged up by a less-than-expected 1.7 percent in January after posting the biggest two-month fall in 24 years.

Still, a Reuters poll on Wednesday showed forecasters expect the Canadian dollar will recover some of its early 2013 losses and trade at equal value against its U.S. counterpart by the end of this year.

Canadian government bond prices were lower across the curve, with the two-year bond off 3 Canadian cents to yield 0.945 percent, while the benchmark 10-year bond fell 23 Canadian cents to yield 1.874 percent.