PREVIEW-Canada jobs market seen treading water in October

* What: Statscan releases employment data for October

* Expected: Gain of 10,000 jobs, unemployment rate 8.5 pct

* When: Friday Nov. 6 at 7 a.m. (1200 GMT)

By Louise Egan

OTTAWA, Nov 4 (Reuters) - Canadian employers likely hired more workers in October for a third straight month, but the jobless rate is expected to continue to rise as there is still no sign of an entrenched recovery in the private sector.

Economists surveyed by Reuters forecast, on average, a net gain of 10,000 jobs in October and an unemployment rate of 8.5 percent, up from 8.4 percent in September.

The employment gains are considered marginal, reflecting an economy that is stabilizing after the recession but standing still rather than gathering speed.

"Usually you have to wait until you see positive GDP growth before you start to see positive employment growth alongside, so at best employment is a coincident or lagging indicator," said Mark Chandler, fixed income strategist at RBC Capital Markets.

Employers added about 30,000 workers in both September and August, but Chandler attributed this to catch-up after heavy layoffs early in the summer, particularly in the auto and construction sectors.

The August and September reports painted an unrealistically rosy picture of the labor market, when in fact many of the jobs were in government or the result of self-employment, argued Scotia Capital economists Karen Cordes and Derek Holt in a note to clients.

Canada's economy shrank by 0.1 percent in August, disappointing markets and casting doubt on whether the country climbed out of recession in the third quarter as most economists had predicted.

Canada's parliamentary budget officer, Kevin Page, said in a report this week that the unemployment rate in September would have been about three percentage points higher if it had included involuntary part-time workers and discouraged workers.

"The average duration of unemployment is increasing at a significant rate," Page added, saying that Canada has lost 395,000 full-time jobs since October 2008.

Most job gains in October are seen coming from service industries, following a recent trend that has shown a weak job environment in manufacturing, with September being the anomaly. In September, the manufacturing sector added 26,000 jobs.

"September's unexpected gain in manufacturing is likely unsustainable. However, a continued rebound in housing points to job gains in the construction industry, which should provide some offset," Benjamin Reitzes, economist at BMO Capital Markets, said in a research note.

Finance Minister Jim Flaherty reminded Canadians last Friday that jobs will not return to the economy for some time after recovery, and budget officer Page forecast an average unemployment rate next year of 8.9 percent, up from an average of 8.4 percent this year. (Reporting by Louise Egan; editing by Peter Galloway)