* C$ slips to 94.92 U.S. cents
* Bonds prices fall, hurt by positive U.S. data
* Markets cautious ahead of Friday's U.S. jobs report (Updates prices to market close)
TORONTO, Sept 2 (Reuters) - Canada's dollar turned lower against the U.S. currency on Thursday, giving up some of the previous session's strong gains, with market players guarded a day before a key U.S. employment report.
Investors will be closely monitoring August's non-farm payrolls report on Friday for signs of whether the U.S. economy can forge a stronger recovery after Thursday's data eased fears of a new recession.
The monthly jobs report is expected to show a third straight decline. [ID:nN31235915]
"We really did have a tremendous day yesterday and we have non-farm, which is looming tomorrow, so I think as we await that, there is a holding pattern going on in some currencies," said Camilla Sutton, chief currency strategist at Scotia Capital.
"Canada has just given up some of yesterday's gains."
The Canadian dollar CAD=D4 closed at C$1.0535 to the U.S. dollar, or 94.92 U.S. cents, down from C$1.0520 to the U.S. dollar, or 95.06 U.S. cents, at Wednesday's close.
It jumped more than a penny on Wednesday as risk appetite rose on stronger than expected Chinese and U.S. economic data, which soothed investor fears about the lagging recovery.
Thursday's U.S. data showed pending sales of previously owned U.S. homes rebounded unexpectedly in July and new claims for jobless benefits fell last week. ECON
But the Canadian dollar turned lower even as riskier assets such as North American stock markets held firm, while influential oil prices were also up on the day.
A Reuters poll on Thursday found global currency strategists expect the Canadian dollar will be little changed against the greenback over the next few months, and gain slightly after that. They said the chances of it returning to parity with the U.S. dollar have diminished. [CAD/POLL]
BONDS HOLD LOWER
Domestic bonds were weaker across the curve as double-dip fears receded on the positive economic data.
But the big test is still Friday's U.S. jobs report, which could firm up the market's expectations of the Bank of Canada's next interest rate move, given that the central bank has said it is monitoring developments in the United States.
The sputtering U.S. economy has displaced European debt problems as the top worry for Canadian policymakers, but even as gloom settles over the U.S. Federal Reserve, the Bank of Canada looks set to raise rates for a third time this year. [ID:nN01259189]
The bank's Sept. 8 rate decision is one of the closest calls in some time. Markets are pricing in an almost even probability of a hike based on yields on overnight index swaps, according to a Reuters calculation. BOCWATCH
Another Reuters poll on Thursday showed most primary dealers and global forecasters expect the Bank of Canada to boost interest rates next week but then step to the sidelines for at least the rest of the year. [CA/POLL]
Canada's two-year bond CA2YT=RR dipped 4 Canadian cents to yield 1.28 percent, while the 10-year issue CA10YT=RR dropped 15 Canadian cents to yield 2.864 percent.
In new issues, the province of British Columbia sold C$500 million of bonds due 2042. [CA-TNC]
Canadian assets were little changed by the European Central Bank's decision to keep interest rates on hold at a record low, as expected, amid a lopsided economic recovery and continued worries about the banking sector. [ID:nFRK015200] (Reporting by Ka Yan Ng and Claire Sibonney; editing by Rob Wilson)