* C$ closes at C$0.9910 vs US$, or $1.0091
* U.S. employment data seen boosting US$ further
* Bond prices fall across curve (Updates to close, adds details, quotes)
By Claire Sibonney
TORONTO, Feb 3 (Reuters) - The Canadian dollar edged lower against a rallying greenback on Thursday as investors anticipated that U.S. January employment data on Friday will be stronger than forecast.
The market expects that U.S. nonfarm payrolls increased by 145,000 jobs in January, but severe snow storms that blanketed large parts of the country during the survey period could result in a much lower figure. [ID:nN0187135]
Canadian employment data for January is also due on Friday, and an increase jobs 15,000 jobs is expected, while the unemployment rate is seen holding steady at 7.6 percent. [ID:nN28144465]
"It's a bit of a reversal, for the better part of the last three weeks to a month, the U.S. dollar has been under broad pressure downward, and I think it got overdone a little bit," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.
"There's definitely underlying sentiment that the payroll report tomorrow in the U.S. will be firm, and I think the theme of 'good U.S. economic news is bad for the U.S. dollar' has sort of run its course. I think that's getting a bit stale."
Chandler was referring to the market notion of the U.S. dollar as a safe-haven currency that tends to lose out as risk appetite increases. He said investors are now recognizing that strong economic data for a country should support that country's currency.
As a result, the Canadian dollar, which in the recent past has benefited from bullish U.S. data, could slip further against the greenback.
A struggling euro on Thursday also helped to boost the U.S. dollar's fortunes against a range of currencies including the Canadian dollar, said Sacha Tihanyi, currency strategist at Scotia Capital.
The euro fell sharply against the greenback after European Central Bank President Jean-Claude Trichet sounded less hawkish than expected during a news conference, dampening speculation of an ECB interest-rate hike. [FRX/]
"A lot of the euro gains recently have been predicated on more hawkish inflation talk and expectation of more monetary tightening over the course of the next 12 months," he said.
The Canadian currency CAD=D4 closed the North American session at C$0.9910 to the U.S. dollar, or $1.0091, down from Wednesday's North American finish of C$0.9882 to the U.S. dollar, or $1.0119.
Data that showed that showed that growth in the U.S. services sector in January was the fastest in more than five years, and a drop in U.S. jobless claims were also U.S.-dollar positive. [ID:nN03256467]
Jack Spitz, director of foreign exchange at National Bank Financial, said investors were optimistic about the U.S. nonfarm payroll figures following a raft of positive indicators, including private-sector employment data on Wednesday.
This contrasts with toned down expectations in Canada after Finance Minister Jim Flaherty warned earlier this week of "a challenge" with respect to unemployment numbers. [ID:nN31215923]
"There is some better anticipation with respect to the U.S. numbers but we suspect we'll see a fair bit of volatility price-action-wise tomorrow," Spitz said.
He noted that the Canadian dollar's year-to-date high of C$0.9837 versus the U.S. dollar is providing near-term resistance for Canada's currency. Supporting the Canadian dollar is a technical trend channel of C$1.0037 that has been in place since late November.
Canadian bond prices edged lower, following the path of U.S. Treasuries, which weakened on worries about inflation and optimism over an economic recovery. [US/]
Canadian issues, however, outperformed their U.S. counterparts across the curve.
"The U.S. (yield) is being pushed up harder, it's being led by the belly of the curve, Canada has had a similar move but more muted," said RBC's Chandler.
"We've definitely seen a more concerted move in the U.S. because of the direct impact of their stronger economic data."
The two-year bond CA2YT=RR was off 5 Canadian cents to yield 1.770 percent, while the 10-year bond CA10YT=RR dropped 34 Canadian cents to yield 3.421 percent. (Reporting by Claire Sibonney; editing by Peter Galloway)