CANADA FX DEBT-C$ gains despite oil fall, all eyes on U.S. jobs data

(Adds analyst comment, updates prices to close)
    * Canadian dollar settles at C$1.3086, or 76.42 U.S. cents
    * Bond prices higher across maturity curve

    By Alastair Sharp
    TORONTO, Sept 1 (Reuters) - The Canadian dollar made small
gains against a broadly weaker U.S. counterpart on Thursday as
oil prices slumped and an unexpected decline in U.S.
manufacturing data cast some doubt on economic growth there
ahead of a key jobs report on Friday.
    "The market is being pulled in many different directions
today because it's the first trading day of the month, the U.S.
jobs report is coming tomorrow, and oil is down another 3
percent," said Adam Button, currency analyst at ForexLive in
    The U.S. dollar weakened as data showed U.S. factory
activity contracted in August for the first time in six months
as new orders and production tumbled.  
    Investors are keenly attuned to data that could sway Federal
Reserve policymakers considering whether to raise interest
rates, possibly as soon as this month, with Friday's nonfarm
payrolls offering a major new insight.
    Button said the loonie could weaken if the U.S. economy
added at least 170,000 jobs in August. "That's a solid green
light for the Federal Reserve," he said. 
    The Canadian dollar settled at C$1.3086 to the
greenback, or 76.42 U.S. cents, stronger than Wednesday's close
of C$1.3116, or 76.24 U.S. cents.
    The currency's strongest level of the session was C$1.3083,
while its weakest was C$1.3149, a three-week low.
    "There's some hidden Canadian dollar weakness there that's
masked by a broader fall in the U.S. dollar," Button added.
    Oil prices fell more than 3 percent, heading for their
sharpest weekly slide since January, as investors brushed aside
talk that OPEC might freeze production and focused on a growing
glut from U.S. crude stockpiles. 
    "Ultimately the drop in oil will win out, but traders are
afraid to dump the Canadian dollar until after the U.S. jobs
report tomorrow," Button said.
    Data on Wednesday showed Canada's economy contracted in the
second quarter by more than the Bank of Canada had projected.
    Canadian government bond prices were higher across the
maturity curve, with the two-year bond up 3.5
Canadian cents to yield 0.563 percent and the benchmark 10-year
 adding 18 Canadian cents to yield 1.005 percent.
    Chinese and Canadian firms signed 56 deals worth more than
C$1.2 billion ($914.8 million) on Thursday, Canadian trade
minister Chrystia Freeland said in Shanghai. 
    Austria said it plans to challenge a free trade deal with
Canada because it sees it containing many of the same problems
as one being negotiated with the United States. 

 (Addiotional reporting by Fergal Smith; Editing by Meredith
Mazzilli and Jonathan Oatis)