* C$ hits session low of 99.40 U.S. cents
* Bonds softer across curve
* Flaherty says challenge to employment numbers
* Flaherty: 50 percent chance of election
(Updates to close, adds details, comments)
TORONTO, Jan 31 (Reuters) - The Canadian dollar dropped
below parity with the U.S. dollar on Monday, and hit its lowest
level this year, after cautious remarks by Finance Minister Jim
Flaherty on employment prompted investors to price in a weak
January jobs figure on Friday.
The currency CAD=D4 skidded nearly a penny to as low as
C$1.0060 to its U.S. counterpart, or 99.40 U.S. cents, its
weakest level since Dec. 28.
Flaherty warned reporters of "a challenge with respect to
unemployment numbers" and urged private employers to show more
confidence and hire workers. He also said he saw a 50 percent
chance that his upcoming budget, to be presented in March, will
be defeated in Parliament, which would trigger an election.
[ID:nN31215923]
"When he came out and sounded cautious with regard to the
employment number, a lot of people thought 'does this mean he
knows the number?'" said David Watt, senior fixed income and
currency strategist at RBC Capital Markets. Watt noted that
through last year Flaherty's comments on jobs numbers had
seemed to provide the market with a leading indicator.
"It's not unfeasible but ... the way the comment played out
at this particular time might not necessarily have been what he
intended -- although I don't think he's necessarily upset with
a little bit of a weaker Canadian dollar."
Canada's employment report for January will be released on
Friday and, on average, analysts expect a gain of 15,000 jobs
in the month, according to Reuters estimates. [ID:nN28144465]
The Canadian dollar had rallied above parity early in the
day after North American economic data beat expectations and
oil prices surged, while fears over political turmoil in Egypt
waned a bit. [ID:nN31151915] [ID:nN31223933] [O/R]
The Canadian currency ended the day at C$1.0015 to the
U.S. dollar, or 99.85 U.S. cents, down slightly from Friday's
close of C$1.0011 to the U.S. dollar, or 99.89 U.S. cents. It
was its second straight close below parity with the greenback.
The currency finished January 0.69 percent lower.
"(Flaherty's) forward-looking comment on employment I think
perhaps alerted people to the risk that Friday's numbers might
be a bit weaker than expected," said Shaun Osborne, chief
currency strategist at TD Securities.
While much most of the day's losses were erased by the end
of the North American session, RBC's Watt said Flaherty's
comments still appear to have left a stain on the currency,
which sharply underperformed its commodity cousins.
TD's Osborne said stop-loss orders accumulated around the
C$1.0010-20 area, with the currency breaking stiff short-term
support levels around the C$1.0030-35 area. The move also
marked a break of a significant downtrend for the U.S. dollar
on the charts going back more than two years.
The next key support level for the Canadian dollar is a
technical retracement at C$1.0067, Osborne said.
"Risk appetite today has probably come back a little bit
but the Canadian dollar just doesn't seem to be able to benefit
... It just says to me that people aren't keen on the Canadian
dollar at the moment."
Prices for Canadian bonds were mixed, but largely
outperformed their U.S. counterparts, as investors took profits
after a flight-to-safety rally driven by the mounting unrest in
Egypt.
The two-year bond CA2YT=RR reversed earlier losses,
adding 2 Canadian cents to yield 1.671 percent, while the
10-year bond CA10YT=RR was down 25 Canadian cents to yield
3.277 percent.
(Reporting by Claire Sibonney; editing by Peter Galloway)