CANADA FX DEBT-C$ recovers from earlier risk aversion; focus turns to jobs

* Canadian dollar at C$1.0647 or 93.92 U.S. cents
    * Bond yields down but cut initial declines

 (Recasts with change in direction, adds details, quotes,
updates prices)
    By Leah Schnurr
    TORONTO, July 10 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday as investors positioned ahead
of the key domestic jobs report at the end of the week, helping
the currency recover from earlier weakness as risk aversion hit
markets broadly.
    Fears over financial troubles at the family-owned holding
companies behind Portugal's largest listed bank rattled
investors overnight as it revived the specter of the euro zone
debt crisis. 
    The concerns hit markets globally and took the loonie lower
in early trading, but the currency shrugged off its losses by
the afternoon.
    "Those types of headlines are typically really loonie
negative," said Rahim Madhavji, president at Knightsbridge
Foreign Exchange in Toronto.
    "It's surprising to see the amount of resistance the loonie
has had to those negative catalysts, which historically would
have been just another reason to sell off the loonie and move
toward the U.S dollar."
    The Canadian dollar ended the North American
session at C$1.0647 to the greenback, or 93.92 U.S. cents,
stronger than Wednesday's close of C$1.0660, or 93.81 U.S.
    After hitting a six-month high last week, the Canadian
dollar's recent rally has ground to a halt with the loonie
mainly trading sideways.
    "It seems like a lot of speculators are starting to be
bullish on the Canadian dollar, we've seen that over the last
couple months with just the position shifting. So the loonie
obviously has some momentum," said Madhavji.
    That sentiment will be tested on Friday with the Canadian
jobs market report, which is forecast to show the economy added
20,000 jobs in June, slowing slightly from the month before.
    The jobs report will be a prelude to next week's monetary
policy statement from the Bank of Canada, which investors are
also positioning for. 
    The central bank has repeatedly flagged its concern about
the low inflation environment, but after some recent
stronger-than-expected inflation readings there is speculation
over whether the bank will be forced to change its message.
    The Bank of Canada will release its updated economic
forecasts at the same time.
    The central bank's business outlook survey, which was
released earlier this week and showed that inflation
expectations remain well-anchored, could serve as a template for
its statement next week, said Mazen Issa, senior Canada macro
strategist at TD Securities in Toronto. 
    "When you take the business outlook survey and the anchored
inflation expectations with the still-slow growth in Canada,
that gives them ample room for now to continue to sound cautious
at next week's meeting," he said.
    After touching a more than one-year low, the yield on the
Canadian government benchmark 10-year bond pared
losses to yield 2.239 percent, up 8 cents in price.
    The two-year was up half a Canadian cent to yield
1.121 percent.

 (Editing by Diane Craft)