* C$ at C$1.0188 vs US$ or 98.15 U.S. cents
* Employment drops 54,000 vs gain of 12,000 forecast
* Markets price in increased chance of a rate cut
* Eye on key Greek confidence vote
* Bond prices rise, outperform U.S. Treasuries (Updates with Greek vote, rate poll, U.S. data, comments)
By Andrea Hopkins
TORONTO, Nov 4 (Reuters) - The Canadian dollar dropped more than a cent on Friday after employment numbers plunged in October, bucking expectations for a gain in jobs and boosting the chances of an eventual Bank of Canada interest rate cut.
Renewed doubts about Europe's bailout package and a looming key vote in Greece also kept risk assets on the defensive, overshadowing signs of improvement in a U.S. jobs report that also came out on Friday.
"The big driver has been that Canadian jobs report ... (but) in terms of event risk today, we're still waiting for that Greek confidence vote," said Stewart Hall, senior currency strategist at Royal Bank of Canada.
Canadian employers cut almost all the jobs gained in September as a sluggish economy led to October layoffs in the manufacturing and construction sectors, data showed. [ID:nN1E7A3026]
"It is definitely suggesting the economy is slowing. I don't think it is enough to get the Bank of Canada to cut at this point, but one or two more of these and there is a strong possibility that the bank could start reducing interest rates," said Sheryl King, head of Canadian economics at Bank of America-Merrill Lynch.
In the wake of the surprise job losses, the Canadian dollar CAD=D3 fell to a session low of C$1.0229 to the U.S. dollar, or 97.76 U.S. cents, its weakest point in more than two weeks, before regaining a little ground.
At 12:25 p.m. (1625 GMT), the Canadian dollar stood at C$1.0188 to the U.S. dollar, or 98.15 U.S. cents, still more than a cent below Thursday's North American close at C$1.0081 to the U.S. dollar, or 99.20 U.S. cents.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders priced in higher chances of a rate cut next year. BOCWATCH
However, a Friday poll of primary dealers showed they expect the Bank of Canada to hold its key policy rate - now at still stimulative 1 percent - for an extended period rather than cut, though four of 12 have pushed back forecasts for the timing of the central bank's next move. [CA/POLL]
Separately, data showed U.S. hiring slowed in October but the unemployment rate hit a six-month low and job gains in the prior two months were stronger than previously thought, pointing to some improvement in the still-weak labor market. [ID:nN1E7A21ET]
But the news was overshadowed by the ongoing debt drama in Europe. Greek Prime Minister George Papandreou faces a vote of confidence on Friday night, with the fate of both the nation's deal on a euro zone debt bailout and the global economy in the balance. [ID:nL6E7M4019]
RBC's Hall said the Greek vote and euro zone fallout could drive the Canadian dollar in either direction overnight.
"While the jobs numbers were important, while G20 was important, Greece has been steering the boat this week and it is still Greece that has its hands on the tiller, up until we find out what happens with this confidence vote," Hall said.
"We could see (the Canadian dollar) really going either way - supporting more positive for risk, or conversely changing to a risk-off if things get messy and there is greater uncertainty on the back of this confidence vote."
Canadian government bond prices were higher across the curve. The two-year bond CA2YT=RR rose 14 Canadian cents to yield 0.928 percent. The 10-year bond CA10YT=RR climbed 32 Canadian cents to yield 2.175 percent.
Canadian government bonds outperformed U.S. Treasuries across the yield curve. (Editing by Jeffrey Hodgson)