* Closes at C$1.0383 to U.S. dollar, or 96.31 U.S. cents
* Profit-taking ends relief rally
* Bond prices lower across the curve (Adds details, analyst's comment)
TORONTO, Oct 7 (Reuters) - The Canadian dollar ended little changed against its U.S. counterpart on Friday, capping a volatile week that saw it hit 13-month lows before regaining some strength as the economic backdrop improved.
North American stock markets and commodity-linked currencies had a see-saw day after stronger-than-expected U.S. jobs data suggested Canada's largest trading partner had likely skirted recession despite the summer slowdown. [MKTS/GLOB]
While stronger than expected employment data in both Canada and the United States buoyed risk appetite in early trade, sending the Canadian dollar higher alongside stocks, the currency later softened as investors went into a long weekend in Canada with a cautious eye on the persisting debt woes in Europe.
"Everything was looking quite rosy early on, and then evidently some profit-taking came in late in the day and no one wanted to go home with risk assets on the books," said Blake Jespersen, director of foreign exchange sales at BMO Capital Markets.
"What that says to us is markets are still not believing in this rally, and as such decided to take profit before the long weekend."
The Canadian dollarended the North American session at C$1.0383 to the U.S. dollar, or 96.31 U.S. cents, barely changed from Thursday's North American session close at C$1.0378 to the U.S. dollar, or 96.36 U.S. cents.
It was down about 1.2 percent on the week, but well off the 13-month low of C$1.0658 it hit on Tuesday.
Still, analysts said the Canadian dollar is likely to weaken again in the days ahead as Europe's sovereign debt crisis persists and concern about the impact of the crisis on the global economy weighs on commodities and risk appetite.
"We're probably going to get back to the recent lows, the C$1.0650 level. I think Europe is going to continue to drag on the markets and any indecision or waffling on this new plan to bail out the banks is really going to cause a lot of market gyration," Jespersen said.
Data showed U.S. employment grew by 103,000 in September, and job gains for previous months were revised higher, easing fears of a double-dip U.S. recession. [ID:nN1E7960AR]
In Canada, a more than expected 60,900 new jobs helped slice Canada's unemployment rate to 7.1 percent in September from 7.3 percent in August, Statistics Canada said on Friday. [ID:nN1E796020]
Overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, showed that traders cut their bets on a rate cut this year or next. Higher interest rates typically help support currencies by attracting capital flows.
A Reuters poll showed Canada's primary dealers now expect the Bank of Canada to raise interest rates in September 2012, signaling a gloomier outlook as concerns over stalled global economic momentum persist.
The median forecast in a Reuters poll on Friday was for an interest rate hike in September, compared with expectations of a July tightening in a similar poll on Sept. 7. [ID:nN1E7961E2]
"There are increasing pressures in financial markets related to Europe, so the external risks that the bank has talked about are, if anything, intensifying," said Paul Ferley, assistant chief economist at RBC Capital Markets.
"With those external risks increasing, there is more reason for the Bank to remain on hold."
Bond prices were lower across the board. The yield on the two-year Canadian government bond, which is especially sensitive to Bank of Canada interest rate moves, fell 6 Canadian cents to yield 0.968 percent. The 10-year bond lost 15 Canadian cents to yield 2.240 percent. (Editing by Jeffrey Hodgson and Peter Galloway)
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