By John McCrank
TORONTO, March 6 (Reuters) - The Canadian dollar slipped against the U.S. dollar on Thursday, but the market avoided big moves ahead of Friday's employment reports in Canada and the United States.
Canadian bond prices rallied as investors sought the safety of government debt as fallout from the U.S. subprime mortgage debacle weighed on stock markets.
The Canadian dollar closed at US$1.0132, valuing a U.S. dollar at 98.70 Canadian cents, down from US$1.0143, valuing a U.S. dollar at 98.59 Canadian cents, at Wednesday's close.
With Canada's key economic data release of the week coming on Friday, investors had their sights set elsewhere, making for a lackluster day for the Canadian dollar.
The focus of the foreign exchange market was largely aimed at the euro, which hit a record high against the greenback as comments by the European Central Bank downplaying chances of an interest rate cut allowed the currency to gain some steam.
Friday's employment report could put the spotlight back on Canada, said Camilla Sutton, currency strategist at Scotia Capital.
"People are very much focused on it as an indicator of what's going on in the fundamentals in Canada and should it come in particularly weak, it could well drive the Canadian dollar back to around parity."
On the flip side, if the report were to come in stronger than the market is expecting and the numbers in the United States, which also releases a jobs report, are weak, the Canadian dollar could get a big boost, Sutton said.
Analysts forecast the Canadian economy added 8,000 jobs in February, according to a Reuters poll.
Data released Thursday showed that the value of Canadian building permits slipped for the third straight month in January, briefly knocking the Canadian dollar to a session low of US$1.0116, valuing a U.S. dollar at 98.85 Canadian cents.
But the currency found some traction shortly after the release when another another piece of data painted a rosier picture of the economy.
The Ivey Purchasing Managers Index showed that purchasing activity in the Canada increased in February and at a faster pace than the previous month.
The currency was mostly flat for the majority of the rest of the session, tilting slightly lower toward the close.
Bond prices rose as investors sought more secure assets as equities markets sold off on credit market concerns.
Rumors that Swiss bank UBS UBSN.VX was trying to offload $24 billion of risky mortgages prompted a wave of jitters throughout financial markets.
Very little of the movement in the bond market was driven by financial data, said Mark Chandler, fixed income strategist at RBC Capital Markets.
The two-year bond climbed 19 Canadian cents to C$102.87 putting its yield at 2.537 percent. The 10-year bond rose 58 Canadian cents to C$103.37 to yield 3.567 percent.
The yield spread between the two- and 10-year bond was 103.0 basis points, up from 99.7 points at the previous close.
The 30-year bond increased 85 Canadian cents to C$115.50 to yield 4.086 percent. In the United States, the 30-year Treasury yielded 4.568 percent.
The three-month when-issued T-bill yielded 2.59 percent, down from 2.81 percent at the previous close.