* C$ retreats to 86.51 US cents after hitting 1-week high
* Bonds mixed, short end rises on U.S. jobs data, stocks
* U.S. jobs drop shakes confidence in economic recovery
TORONTO, July 2 (Reuters) - The Canadian dollar was higher, but off session highs, versus the U.S. currency on Thursday morning after U.S. jobs data came in worse than expected, raising doubts about the speed of economic recovery.
U.S. employers cut 467,000 jobs in June, far more than expected, while the unemployment rate rose to 9.5 percent as the labor market continued to struggle with deep recession. The data broke a four-month trend of moderation in job losses, and the May figure was revised downwards. [ID:nN01210643]
The Canadian dollar rose as high as C$1.1472 to the U.S. dollar following the jobs figures. This reaction was "relatively contained," said David Watt, senior currency strategist at RBC Capital Markets.
"I think the nonfarm payrolls report overall wasn't that bad. Not great, but given the situation in the United States, you're not going to get good reports on jobs," he said.
"The report was weak, consistent with a soft economy, but the U.S. is not going back to where it was a few months ago."
At 9:40 a.m. (1340 GMT), the currency was at C$1.1560 to the U.S. dollar, or 86.51 U.S. cents, up from C$1.1630 to the U.S. dollar, or 85.98 U.S. cents, at Tuesday's close.
Canadian markets were closed on Wednesday for the Canada Day holiday.
Canadian bond prices were mixed, with the short end headed higher on the U.S. jobs decline and an early slump in equity markets.
Toronto's main stock index opened more than 1 percent lower [ID:nTOR004717], while U.S. stock indexes also tumbled. [ID:nN024076]
Longer-dated bonds cut losses following the data. The losses were in sympathy with U.S. Treasuries, which fell on Wednesday, while the Canadian market was closed, due to resurfacing supply concerns at the start of third quarter.
The benchmark two-year government bond rose 6 Canadian cents to C$100.14 to yield 1.175 percent, while the 10-year bond was off 7 Canadian cents at C$103.13 to yield 3.375 percent.
The 30-year bond fell 30 Canadian cents to C$119.10 to yield 3.874 percent. The comparable U.S. issue yielded 4.339 percent. (Reporting by Ka Yan Ng; editing by Peter Galloway)