* C$ at C$1.0594 vs US$, or 94.39 U.S. cents * Touches C$1.0609, or 94.26 U.S. cents, weakest since Oct. 2011 * Canada sheds 400 jobs, U.S. adds 195,000 new jobs * 10-year bond yields highest in nearly 2 years By Solarina Ho TORONTO, July 5 (Reuters) - The Canadian dollar fell to its weakest level against the U.S. dollar in 21 months on Friday after North American jobs data showed Canada losing a modest 400 jobs and the U.S. labor market steadily improving. U.S. jobs growth was stronger than expected last month, with employers adding 195,000 new jobs and the unemployment rate holding steady at 7.6 percent. The move increased expectations that the Federal Reserve is closer to pulling back its bond purchases. "This a strong U.S. dollar story, just given their beat on U.S. payroll and the upward revision to the previous month," said David Tulk, chief Canada macro strategist at TD Securities. "What that gets you is the taper trade is on a little bit which will push into U.S. dollar strength and obviously a very pronounced sell-off in Treasuries." The Canadian dollar retreated to C$1.0594 versus the strengthening greenback, or 94.39 U.S. cents, as of 9:16 a.m. (1316 GMT) after trading as soft as C$1.0609, or 94.26 U.S. cents. This was significantly weaker than immediately before the data was released and well off Thursday's finish at C$1.0521 to the U.S. dollar, or 95.05 U.S. cents. In Canada, market analysts had predicted a loss of 2,500 jobs after May's huge 95,000 new positions, the second highest increase on record. The jobless rate was steady at 7.1 percent. "This is about as close to expectations as we've seen in quite some time for Canada's employment report - no big surprise at all that we had basically a flat month after the blowout in May," said Doug Porter, chief economist at BMO Capital Markets. Prices for Canadian government debt fell sharply across the maturity curve. The two-year bond was down 11.5 Canadian cents to yield 1.239 percent. The benchmark 10-year bond gave back C$1.16 to yield 2.556 percent, its highest yield since early August 2011.