CANADA FX DEBT-C$ strengthens to one-week high on jobs data, oil

(New throughout, updates prices and market activity, adds
portfolio manager comments)
    * Canadian dollar at C$1.3002, or 76.91 U.S. cents
    * Loonie hit strongest since March 31 at C$1.2952
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, April 8 (Reuters) - The Canadian dollar
strengthened to a one-week high against its U.S. counterpart on
Friday, with investor optimism buoyed by stronger-than-expected
Canadian jobs data and a rally in oil prices.
    The economy created 40,600 jobs in March, far surpassing
economists' expectations for 10,000, and driven by a 35,300
increase in full-time jobs. The unemployment rate declined to
7.1 percent, its lowest since December. 
    "Canada is getting some positive benefits at least from a
very diversified economy," said Sebastien Lavoie, assistant
chief economist at Laurentian Bank.    
    The implied probability of a Bank of Canada interest rate
cut this year dropped to 12 percent from 20 percent before the
report. It was more than 50 percent a little more than one month
    Still, market players doubted the report would trigger a
hawkish response from the Bank of Canada at next week's interest
rate announcement.
    The central bank "won't want to say anything that would push
the currency up from here" mindful that a weaker currency had 
helped Canada's economy, said Hosen Marjaee, senior managing
director, Canadian fixed income at Manulife Asset Management.
    Oil prices rose, lifted by fresh hopes that producing
countries would agree to freeze oil output and firm economic
indicators from the United States and Germany that boded well
for fuel demand. 
    U.S. crude prices settled at $39.72 a barrel, up 6.6
    The Canadian dollar closed at C$1.3002 to the
greenback, or 76.91 U.S. cents, much stronger than Thursday's
close of C$1.3144, or 76.08 U.S. cents.
    The currency's weakest level was C$1.3155, while it touched
its strongest since March 31 at C$1.2952.    
    A report from the Canadian Mortgage and Housing Corp showed
the seasonally adjusted annualized rate of housing starts fell
to 204,251 units in March from an upwardly revised 219,077 units
in February. Forecasters had expected 190,000 starts.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 7.5
Canadian cents to yield 0.564 percent and the benchmark 10-year
 falling 56 Canadian cents to yield 1.228 percent.   
    Canada-U.S. bond spreads moved higher as Canadian government
bonds underperformed.
    The two-year spread rose 3.4 basis points to -13.5 basis
points, its least negative since October, while the 10-year
spread rose 3.2 basis points to -49.0 basis points, its least
negative since May.

 (Editing by Bernadette Baum and David Gregorio)