* Currency rallies from a session low
* Traders await Friday's key June jobs data
* Bonds slide ahead of Bank of Canada auction
By Frank Pingue
TORONTO, July 8 (Reuters) - The Canadian dollar rallied from an early retreat on Tuesday to close just a touch lower against the greenback, as oil prices tumbled further from last week's record highs, but the currency's move was limited ahead of key domestic jobs data due later this week.
Bond prices fell ahead of Wednesday's Bank of Canada auction and on further talk of interest rate hikes.
The Canadian dollar closed at C$1.0191 to the U.S. dollar, or 98.13 U.S. cents, down from C$1.0189 to the U.S. dollar, or 98.15 U.S. cents, at Monday's close.
The blame for the currency's decline rested on oil prices, which slid $5.33 to settle at $136.04, pushing the price of crude further away from last week's record high near $146 a barrel.
"Oil prices came off so it might have provided a bit of pressure on the Canadian dollar, however the move has been fairly limited," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
"But in some ways it's surprising if the Canadian dollar is going to trade with oil prices that we didn't even see a bigger move, given the extent of the falloff in oil."
The Canadian dollar spent the session in a range between C$1.0232 and C$1.0175 to the U.S. dollar, or 97.73 and 98.28 U.S. cents.
While oil prices weighed on the commodity-linked currency, the link between the two has diminished considerably since last year when oil prices were a key driver behind its 17.5 percent rise.
Either way, moves by the Canadian dollar are likely to be limited ahead of the key report of the week -- domestic jobs data for June -- due out on Friday.
The June employment figures, the last piece of data the Bank of Canada will consider ahead of its next scheduled rate decision on July 15, are expected to show the economy created 10,000 jobs in June with an unemployment rate of 6.1 percent.
"With our employment numbers coming out at the end of this week we may have financial markets just waiting for further clues on the economy going into next week's fixed announcement date," said Ferley.
While the central bank is expected to leave its key overnight rate steady, plenty of attention will be put on the accompanying statement to see if the emphasis will remain on inflation or if the characterization will be more balanced.
BOND PRICES DOWN
Bond prices ended lower across the curve as dealers unloaded them with hopes of snapping them back up at a lower price at Wednesday's Bank of Canada auction.
The bank will auction C$2.5 billion of government of Canada bonds with a coupon of 4.25 percent, due June 1, 2018.
"If you're either a dealer bidding on the auction, or if you're an investor wanting to buy the bonds, you want to buy these things as cheaply as possible," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
"So you try to knock the price prior to bidding on these things. I think it's part of the normal gamesmanship more than anything else."
Another drag on bond prices was the Bank of Canada's decision to not roll over a Purchase and Resale Agreement, and its comments that the domestic market had improved since April.
The latest comments from the central bank were not a huge surprise as they followed its Business Outlook Survey on Monday, which pointed to increased inflationary risks and spurred talk of interest rate hikes.
The two-year bond dipped 9 Canadian cents to C$101.00 to yield 3.200 percent. The 10-year bond was down 19 Canadian cents at C$102.29 to yield 3.696 percent.
The yield spread between the two-year and 10-year bond was 49.5 basis points, up from 52.0 at the previous close.
The 30-year bond fell 21 Canadian cents to C$116.15 for a yield of 4.047 percent. In the United States, the 30-year treasury yielded 4.453 percent.
The three-month when-issued T-bill yielded 2.48 percent, down from 2.49 percent at the previous close.
