* Concerns about U.S. economy weigh on Canadian dollar
* Currency ends week with 2.6 percent decline
* Bond prices rebound to close higher across curve
By Frank Pingue
TORONTO, June 6 (Reuters) - The Canadian dollar fell on Friday as a record surge in oil prices stirred concerns about the impact a U.S. slowdown could have on Canada, despite the direct benefits of expensive crude for the resource-oriented economy.
The Canadian dollar closed at C$1.0193 to the U.S. dollar, or 98.11 U.S. cents, down from C$1.0178 to the U.S. dollar, or 98.25 U.S. cents, at Thursday's close.
For the week, the currency fell 2.6 percent after sliding in four of the week's five sessions.
Oil prices surged more than $11 to a record high above $139 a barrel on Friday -- a move that normally would spark a rally by the Canadian currency, given the country's position as a key oil exporter.
However, the jump acted as a drag on the currency, given the negative implications that higher crude prices could have for the United States, Canada's main export market by far.
Crude settled at $138.54 a barrel, up $10.75 or 8.4 percent.
"The concern is, if we see oil prices stay at these levels, what will happen to the U.S. economy, especially after today's U.S. employment numbers," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
"It's not a situation where the market is totally ignoring the oil price, it's just that other factors are more important and it more than offset any potential of a rally."
Early in the session the Canadian dollar slipped to C$1.0216 to the U.S. dollar, or 97.89 U.S. cents, as domestic employment data missed forecasts and showed job growth slowed in May to its weakest level since December.
The Canadian economy added 8,400 jobs in May, below the median forecast in a Reuters poll for 10,000 jobs.
But the currency recouped all its losses within half an hour and then rallied on U.S. dollar weakness after data showed the U.S. unemployment rate rose in May, which added to fears U.S. economy could tip into recession.
BONDS TURN HIGHER
Canadian bond prices rebounded from recent losses to close higher across the curve as a Bank of Canada rate cut next week is still considered a certainty, despite the latest jobs data, which came in below expectations.
One expert said dealers likely took the domestic jobs data with a grain of salt given that it showed the Ontario and Quebec had job gains while Alberta -- in the midst of an energy boom -- had job losses.
"Because of the suspect nature the jobs data it's not going to have an impact on what the Bank of Canada does on Tuesday and that's why you didn't quite get the bond market volatility," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
A Reuters poll taken after the jobs data showed all 12 primary dealers expect the Bank of Canada to lower its key overnight rate by 25 basis points to 2.75 percent when it announces its next scheduled rate decision on June 10.
The two-year bond rose 2 Canadian cents to C$101.67 to yield 2.876 percent. The 10-year bond added 37 Canadian cents to C$102.62 to yield 3.655 percent.
The yield spread between the two-year and 10-year bond was 77.9 basis points, down from 81.8 at the previous close.
The 30-year bond gained 72 Canadian cents to C$114.82 for a yield of 4.119 percent. In the United States, the 30-year Treasury yielded 4.632 percent.
The three-month when-issued T-bill yielded 2.55 percent, unchanged from the previous close.