CANADA FX DEBT-C$ firms on trade deficit data; U.S. jobs in focus

(Adds details, fresh comment, closing figures)
    * Canadian dollar at C$1.2564 or 79.59 U.S. cents
    * Bond prices mostly lower across the maturity curve

    By Solarina Ho
    TORONTO, April 2 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Thursday as data
showed Canada posted a smaller-than-expected trade deficit in
February and as investors positioned themselves ahead of
Friday's U.S. payrolls data and the Easter long weekend.
    Canada's trade deficit shrank to C$984 million from C$1.48
billion in January, much smaller than the C$2 billion shortfall
economists had forecast, as exporters benefited from stabilizing
oil prices. January figures were also revised sharply lower,
from C$2.45 billion. 
    "That's given a boost in terms of protecting the downside
risk and how ugly things could've gotten," said Rahim Madhavji, president, who added that some broad-based
U.S. dollar weakness also helped.
    "With the data that came out, it wasn't pretty, but wasn't
terrible. Slightly better than expected and I think for the most
part, a little bit of sigh of relief for Canadian dollar bulls."
    South of the border, weekly U.S. jobless claims fell more
than expected, boosting the labor market outlook despite
evidence of slowing economic growth, while the trade deficit
narrowed 16.9 percent to $35.4 billion in February.
    The Canadian dollar finished the session at       
C$1.2564 to the U.S. dollar, or 79.59 U.S. cents, stronger than
Wednesday's finish of C$1.2626, or 79.20 U.S. cents.
    Shaun Osborne, chief currency strategist at TD Securities, 
said overall disappointing economic data out of the United
States recently has put a crimp on U.S.-Canadian dollar spreads.
    "Narrower spreads is really kryptonite for USD/CAD ...
Spreads have narrowed - that's bad for the U.S. dollar, good for
the Canadian dollar," he said, pointing to easing pressure on
the Bank of Canada to introduce another rate cut following
January's surprise 25 basis point cut.
    The two-year spread was at -4.6, while the 10-year was
    Strategists said traders were also positioning themselves
ahead of Friday's U.S. job report for March, which will likely
set the market tone next week. Markets in Europe, Canada and
most of the United States will be closed for Good Friday, but
the U.S. government will remain open.
    Markets have become increasingly sensitive to U.S. economic
data, particularly as June - the earliest time frame for when
the U.S. Federal Reserve could hike interest rates - approaches.
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year down 1 Canadian
cent to yield 0.494 percent and the benchmark 10-year
 off 1 Canadian cent to yield 1.314 percent.

 (Editing by Nick Zieminski and Dan Grebler)