OTTAWA, April 8 (Reuters) - Canada added far more jobs than expected last month as service sector hiring accelerated and the unemployment rate fell from a three-year high, although economists were wary of reading too much into the notoriously volatile figures.
Still, the report was the latest indication the economy grew strongly in the first quarter after struggling with the oil price shock last year. Separate data on Friday showed activity in the housing sector held up in March, with housing starts declining less than expected to 204,251 units.
The economy created 40,600 jobs in March, Statistics Canada said, far surpassing economists' expectations for 10,000, and driven by a 35,300 increase in full-time jobs. The unemployment rate declined to 7.1 percent, its lowest level since December.
It was the last major piece of domestic data ahead of next week's Bank of Canada interest rate decision. The central bank is expected to keep rates at 0.5 percent given strong first-quarter data.
Even with this week's disappointing trade report, growth is expected to surpass the central bank's 1 percent forecast for the quarter.
While economists pointed to the volatile nature of the report, they were generally encouraged.
"You always take the latest print with a grain of salt, this one with a mountain of salt," said Derek Holt, economist at Scotiabank.
"But the trend nevertheless supports a much more encouraging picture than one might have thought given the downdraft in commodities."
The Canadian dollar strengthened against the greenback after the report.
The service sector contributed the most to the labor market's improvement, led by a 24,900 increase in jobs in healthcare and social assistance. Economists had expected to see a rebound in the sector in March after an outsized decline the previous month.
There were gains in other service industries as well, including accommodation and food, and professional services. The goods-producing part of the economy fared poorly, with declines in manufacturing and construction.
The natural resources sector continued to shed jobs with a loss of 2,100 positions. The sector has seen a more than 4 percent decline in jobs in the past year as commodity prices have slumped.
Data from the Canadian Mortgage and Housing Corporation continued to show the regional divide in the housing market with starts declining in the oil-exposed prairie provinces but gaining in Ontario. Groundbreaking in British Columbia also cooled, which could alleviate concerns the province is overheating.
Additional reporting by Andrea Hopkins in Toronto; Editing by Bill Trott