(Adds details, economist quotes, market reaction, byline)
By Leah Schnurr
OTTAWA, Sept 9 (Reuters) - Canada created more jobs than expected in August on increased hiring in the construction and services sectors, but the gains did not fully make up for recent declines in employment, pointing to a labor market that was struggling to gain momentum.
Canada added 26,200 jobs in August, Statistics Canada said on Friday, following two months of declines. The unemployment rate rose to 7.0 percent as more people were looking for work.
Economists were encouraged by the 52,000 gain in full-time work, but noted the report could be volatile month-to-month. Compared to a year ago, employment was up just 0.4 percent.
“It’s still been a really challenging year for the job market,” said Doug Porter, chief economist at Bank of Montreal.
“We’re still seeing just modest job growth over the past year.”
The economy shrank in the second quarter, hurt by the impact of wildfires in Alberta, but analysts expect to see a recovery in the third quarter.
The Bank of Canada earlier this week said it still expects growth to rebound in the second half of the year, but warned the economy could be weaker than it had anticipated.
The central bank is expected to hold interest rates steady until 2018, though a minority in the market are betting on an interest rate cut.
While August’s increase in full-time work will likely provide solace for the central bank, the overall increase in employment did not fully offset July’s sizeable decline, noted Paul Ferley, assistant chief economist at Royal Bank of Canada.
“The bank will take some encouragement from the report but I think it will still remain cautious about the Canadian economy, the tone that was reflected in this week’s policy statement,” Ferley said.
The Canadian dollar extended its weakness against the greenback following the report.
The goods producing segment of the economy also fared well, with construction jobs up 7,400. The natural resources sector, which has been hit by job losses due to the slump in oil prices, added 4,400 new positions, though employment is still down more than 11 percent from last August.
Additional reporting by Ethan Lou and Matt Scuffham in Toronto; Editing by Bernadette Baum