July 6, 2018 / 1:06 PM / 10 months ago

WRAPUP 1-Canada creates more jobs than expected, rate hike seen likely

OTTAWA, July 6 (Reuters) - The Canadian economy added more jobs than expected in June, helping cement market expectations that the Bank of Canada will raise interest rates for the fourth time in a year next week.

Statistics Canada said on Friday that 31,800 positions had been created in June, most of them part-time, while the unemployment rate rose to 6.0 percent from 5.8 percent as more people sought work.

Analysts in a Reuters poll predicted a gain of 24,000 positions and said the jobless rate would remain unchanged.

The Bank of Canada has raised rates three times since July 2017 and governor Stephen Poloz said last week economic data would decide the next move on July 11.

The central bank also pays close attention to income growth. Average hourly wages in June rose by a healthy 3.5 percent from a year earlier.

“Six percent is a low unemployment rate and 3.5 percent is decent wage growth. We’re still in a position that the Bank of Canada will tighten in July,” said Andrew Kelvin, senior rates strategist at TD Securities.

The jobs gain was driven by an increase of 22,700 in part-time positions, while full-time work rose by 9,100. Manufacturing employment grew by 10,900 jobs, the first advance this year.

The Canadian dollar initially strengthened to C$1.3095 to the U.S. dollar, or 76.37 U.S. cents, up from C$1.3137, or 76.12 U.S. cents, before later giving up its gains.

Data released in Washington showed U.S. job growth increased more than expected in June.

“Overall it is a good number for Canada this morning. (As) for the Bank of Canada, the market was already pricing a rate hike so the number this morning doesn’t change that view,” said Paul-Andre Pinsonnault, senior fixed income economist at National Bank Financial.

Traders see an 85.6 percent chance of a hike next week, the overnight index swaps market indicated.

Separately, Statscan said Canada’s trade deficit in May grew to C$2.77 billion ($2.11 billion) from C$1.86 billion in April on a sharp rise in imports of airliners and gasoline while exports edged down. Analysts in a Reuters poll had predicted a shortfall of C$2.05 billion.

The data underscored the continued importance of the U.S. market, which took 74.2 percent of all Canadian goods exports in May. The Bank of Canada says uncertainty over trade tensions between Canada and the United States is one of the biggest potential threats to the economy.

($1=$1.31 Canadian)

Additional reporting by Fergal Smith, Matt Scuffham and Nichola Saminather in Toronto Editing by Frances Kerry

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