* Canadian dollar touches week's high, cross action helps
* Bonds hurt by optimism over economic recovery
* U.S. March payrolls fall 663,000, jobless rate 8.5 pct (Updates to close)
TORONTO, April 3 (Reuters) - The Canadian dollar rose to its high for the week against the U.S. dollar on Friday as appetite for risk increased along with optimism about a global economic recovery, which hurt safe-haven currencies.
U.S. data showed job losses last month were smaller than they were in the first two months of the year, and not as bad as many had feared, which allowed the U.S. dollar to rise against the yen, which was already laboring from having its ultra safe-haven status dented by rising risk appetite.
The euro, meanwhile, extended gains it made in the previous session against the U.S. dollar after the European Central Bank cut interest rates less than expected. [ID:nN03362926]
"The driver of much of the currency market right now is coming either in the euro/US, euro/yen, or dollar/yen. As a result of the markets there, the currencies like the Canadian dollar tend to take their cue," said Jack Spitz, managing director of foreign exchange, at National Bank Financial.
That helped the currency touch C$1.2297 to the U.S. dollar, or 81.32 U.S. cents, its highest level in a week.
The Canadian unit finished at C$1.2304 to the U.S. dollar, or 81.27 U.S. cents, up from C$1.2409 to the U.S. dollar, or 80.59 U.S. cents, at Thursday's close.
Attempts towards the C$1.22 level will need to be led by rises in equity markets, Spitz said.
He noted, however, that equity and commodity markets, particularly crude oil, had a weaker influence on the Canadian dollar on Friday than they have had in recent sessions.
The U.S. economy shed 663,000 jobs in March, more than expectations of a drop to 650,000. The unemployment rate rose to 8.5 percent, as forecast. [ID:nL3944423]
Canadian government bond prices were lower across the curve as job losses in the United States were not as bad as some market players had feared.
That added to optimism that has been building over the past few weeks over the state of the global economy.
"We know the numbers are bad but they've stopped getting worse," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment. "I think that's why some people are interpreting the data a bit bullishly."
He also pointed to a gradual shift in asset mix as stocks have generally held a better tone in the last three weeks, and hope seems to be mounting.
Optimism about an economic recovery has tended to draw investors to switch out of safe haven investments and into riskier markets such as equities.
The two-year bond fell 5 Canadian cents to C$100.23 to yield 1.141 percent. The 10-year bond retreated 61 Canadian cents to C$107.14 to yield 2.930 percent.
The 30-year bond eased C$1.30 to C$123.20 to yield 3.671 percent. The U.S. 30-year bond yielded 3.695 percent.
Canada bonds mostly outperformed their U.S. counterparts across the curve, except in the five-year benchmark. The 30-year bond yield was 2.4 basis points below its U.S. counterpart, compared with 2.6 basis points above on Thursday. (Reporting by Ka Yan Ng; editing by Peter Galloway)