CANADA FX DEBT-C$ weaker after domestic jobs data

TORONTO, June 5 (Reuters) - The Canadian dollar was weaker against the U.S. currency on Friday after government data showed Canada lost about 42,000 jobs in May and the unemployment rate surged to an 11-year high.

The Canadian dollar CAD=CAD=D3 weakened slightly to around C$1.1033 to the U.S. dollar, or 90.64 U.S. cents, from around C$1.1022, or 90.73 U.S. cents, in the minutes before the data's release.

At 7:39 a.m. (1139 GMT), the Canadian unit had recovered to C$1.1019 to the U.S. dollar, or 90.75 U.S. cents. This was still down from C$1.0968 to the U.S. dollar, or 91.17 U.S. cents, at Thursday’s close.

Statistics Canada said on Friday the net job losses in May totaled 41,800 and the unemployment rate jumped to 8.4 percent from 8.0 percent in April, as the worst recession since World War Two led to massive lay-offs in the factories of Ontario, once the country’s manufacturing powerhouse. [ID:nN05253705]

The data was worse than expected and comes as an unprecedented rally in the Canadian dollar hammers manufacturers.

Analysts surveyed by Reuters had predicted employers would drop 33,000 staff from payrolls and the jobless rate would rise to 8.2 percent.

“I assume it’s slightly Canadian dollar negative to the degree that the numbers were technically worse than expected,” said Eric Lascelles, chief economics and rates strategist with TD Securities.

“For the Bank of Canada, I don’t know if there’s anything all that profound. Anyone was dreaming in Technicolor if they thought we were going to continue to see 36,000 job gains on a monthly basis. The realist would have expected a return back to this sort of outcome.”

The data comes a day after the Bank of Canada, in announcing it would hold its key interest rate steady at 0.25 percent, as expected, sounded an alarm by stating a sustained rally in the Canadian dollar could hamper recent significant improvements in economic conditions. [ID:nN0479627]

Going forward, the market is awaiting a labor report from the United States, which is due for release at 8:30 a.m. on Friday.

Domestic bond prices were mixed across the curve, with the short end flat to slightly higher and the long end slightly lower. The market followed U.S. Treasuries in subdued activity as the it awaited the influential U.S. non-farm payrolls report. [ID:nL5113543] (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)