* C$ drops as low as $1.0238, lowest point since March 2
* Bond prices rise on safe-haven demand
* Canada trade surplus C$116 mln, much less than forecast
* Oil futures fall, U.S. dollar gains on euro zone worries
* Next up: Canada February jobs report (Updates to close)
By Ka Yan Ng
TORONTO, March 10 (Reuters) - Canada's dollar slid to a one-week low against the greenback on Thursday, hurt by retreating oil prices and news the country's trade surplus narrowed by more than expected, softening expectations of a near-term interest rate hike.
Canadian bond prices climbed in a flight to safety, spurred by euro zone debt concerns and tensions in the Middle East and North Africa.
The Canadian dollar CAD=D4 dropped as low as C$0.9768 to the U.S. dollar, or $1.0238, its weakest since March 2, partly on data that showed Canada's trade surplus fell much more than expected to C$116 million in January. [ID:nN10113454]
That compared to the C$2.6 billion forecast by market operators. Statistics Canada also revised December's surplus down to C$1.71 billion from an initial C$3 billion.
Other factors hurting the Canadian dollar included a slide in U.S. crude oil prices and safe-haven buying of the U.S. dollar. The greenback rallied as stock markets dropped after Moody's downgraded Spanish debt, which reignited worries over the euro zone debt crisis. [MKTS/GLOB]
"It's a classic risk-off day where equities and commodities have been swallowed in a sea of red. Not surprisingly we find the safe assets of bonds, Treasuries and the U.S. dollar acting as the main recipient for inflows as investors try to shelter themselves from the storm," said David Tulk, chief Canada macro strategist at TD Securities.
Adding to the negative sentiment, China posted posted a trade deficit of $7.3 billion for February, its first since March 2010 and the biggest since February 2004. [ID:nTOE72903F]
The Canadian dollar finished at C$0.9756 to the U.S. dollar, or $1.0250, down almost three-quarters of a cent from Wednesday's close of C$0.9687 to the U.S. dollar, or $1.0323.
The two-year bond CA2YT=RR advanced 14 Canadian cents to yield 1.776 percent, while the 10-year bond CA10YT=RR jumped 55 Canadian cents to yield 3.392 percent.
RATE HIKE BEFORE MIDYEAR IN QUESTION
Analysts said the details of the Canadian trade report were stronger than the disappointing headline, but unlikely to put the Bank of Canada on track for a rate hike at its next policysetting on April 12.
Based on overnight index swaps, markets are pricing in a 92.17 percent probability of no change in rates in April, up from 90.60 percent just ahead of the trade data, according to a Reuters calculation. BOCWATCH
The market is not fully pricing in a hike until the central bank's September policy-setting date.
"The trade numbers were a great deal worse than expected. Our economic data is still sort of mixed. I would think that not many people are expecting a midyear (interest) rate hike anymore," said John Curran, senior vice president at CanadianForex.
Market attention now turns to Friday's Canadian jobs figures. After stronger-than-expected job creation in January of 69,200, recouping all the job lost in the recession, analysts expect hiring to slow to a more modest pace of 21,000 jobs in February. They also see the unemployment rate falling to 7.7 percent last month from 7.8 percent in January. [ID:nN04215926] (Editing by Jeffrey Hodgson)