* C$ hits low of C$0.9852, or $1.015
* Bonds rally across curve after jobs data
By Claire Sibonney
TORONTO, June 3 (Reuters) - The Canadian dollar tumbled to its weakest level against the U.S. dollar in more than two months on Friday and bond prices rallied, after data showed U.S. employment rose far less than expected in May.
The non-farm payrolls report was the worst reading since September, as the jobless rate rose to 9.1 percent as high energy prices and the effects of Japan's earthquake bogged down the economy. [ID:nOAT004818]
The Canadian dollar hit a session low of C$0.9852, or $1.0150 -- its weakest level since March 21 -- compared to C$0.9782 to the U.S. dollar, or $1.0223, immediately before the release.
"Everyone can see what's going on here from the surprise in the employment figures. Stops are being triggered, there's quite a few offers in dollar/CAD, we're blasting through them here," said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.
"Concerns over how far off the mark that number was have (U.S.) dollar bid very, very strong."
Gavsie added that if North American equity markets also open down sharply, the Canadian dollar could fall further to the reach the C$0.99 area.
The currency was already in negative territory before the data came out as markets anticipated a disappointing print.
Oil prices extended losses as a protracted slowdown in the the second-biggest energy consumer after China could hit consumer spending, leading to lower fuel use. [O/R]
A string of downbeat U.S. releases this week has already made investors wary about the near-term economic outlook.
At 9:00 a.m. (1300 GMT), the currency CAD=D4 was at C$0.9845, or $1.0157, down from Thursday's North American session close at C$0.9756 to the U.S. dollar, or $1.0250.
Canadian bond prices extended gains after the surprisingly disappointing jobs data, following U.S. Treasuries. [US/]
Even as investors weigh whether this signals a soft patch or a prolonged slowdown, markets have begun to come around to the view that government bonds should benefit in the near term as inflationary expectations will be contained.
Canada's two-year bond CA2YT=RR jumped 11 Canadian cents to yield 1.416 percent, while the 10-year bond CA10YT=RR rallied surged Canadian cents to yield 2.959 percent. (Editing by Jeffrey Hodgson)