* C$ at C$1.0164, or 98.39 U.S. cents
* Canadian, U.S. jobs data far weaker than expected
* Markets may start to speculate on Bank of Canada easing
TORONTO, April 5 The Canadian dollar weakened against its U.S. counterpart on Friday after grim employment data in Canada and the United States sparked concerns the economic recovery may be flagging, sending investors to the safety of government bonds.
Major stock markets tumbled, the U.S. dollar fell and U.S. Treasury securities prices rallied after the weaker-than-expected U.S. jobs report, while Brent crude oil fell to an eight-month low. Safe-haven gold prices rose.
A risk-off tone typically hurts the Canadian dollar, and the downdraft was worsened because the Canadian data was weaker even than the unexpectedly tepid U.S. employment data.
"On a relative basis our trade and employment numbers were softer than the U.S. That's the fundamental reason (the Canadian dollar weakened further than the greenback)," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital.
"The broader risk-off tone would have suggested a weaker Canadian dollar as well, and with all those things combined it has actually held in surprisingly strong. I think in part it may have been from some demand for Canadian assets overseas, and that helped prevented a more significant weakening."
The Canadian currency fell to C$1.0236 to the U.S. dollar, or 97.69 U.S. cents, after the economic data was released, shedding more than a cent from Thursday's North American session close to hit a two-week low.
It recovered some ground during the day to end at C$1.0164 to the U.S. dollar, or 98.39 U.S. cents, still well below Thursday's North American session close at C$1.0123 to the U.S. dollar, or 98.78 U.S. cents.
Canada's economy shed 54,500 jobs in March, more than wiping out the previous month's big gain and pushing up the jobless rate to 7.2 percent from 7.0 percent, Statistics Canada data showed on Friday. Market analysts had forecast an increase of 8,500 jobs.
The U.S. job market was little better. U.S. employers added just 88,000 positions last month, the slowest pace in nine months, well below the 200,000 gain expected by analysts polled by Reuters. The data was seen as a sign that Washington's austerity drive could be stealing momentum from the economy.
Canadian trade data also disappointed. Lower exports and slightly higher imports pushed Canada's trade deficit in February up to C$1.02 billion ($1.01 billion) from a revised shortfall of C$746 million in January.
The Canadian currency had notched six-week highs near C$1.01 on Thursday as the yen weakened on Bank of Japan stimulus news and the euro surged higher amid comments by European Central Bank head Mario Draghi.
But Chandler said he thinks the Canadian dollar may weaken further, particularly if the Bank of Canada's business outlook survey, due out on Monday, confirms the weakness implied in recent government data, including the jobs report.
"If the numbers we got today are repeated in the business outlook survey next week it sets stage for a dovish Bank of Canada and you could see the currency weaken from here," Chandler said, noting RBC has forecast the currency to weaken to C$1.05 by the summer.
BMO Capital Markets Chief Economist Doug Porter said that while the March weakness in Canada's job market would not be enough to push the Bank of Canada into easing monetary policy, markets could soon start talking about the possibility. Even a long-shot possibility of lower interest rates could drive investors away from the Canadian currency.
"I don't think one month is going to cause a serious reassessment by the Bank of Canada but suffice it to say if we get this kind of trend continuing, there will be more talk in the markets of the bank possibly considering easing," Porter said after the jobs data was released.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that after the data traders increased their small bets on a rate cut in late 2013.
The price of Canadian government debt was higher across the curve as investors fled to safety. The two-year bond was up 3 Canadian cents to yield 0.978 percent while the benchmark 10-year bond rose 44 Canadian cents to yield 1.747 percent.