* Closes at C$0.9781 to the U.S. dollar, or $1.0224
* Regains ground after touching 5-week low
* Exporter buying, partial stock market recovery support
* Economic fears persist, despite solid U.S. jobs report
* Bond prices fall as equities pare losses (Updates with closing price, details)
By Andrea Hopkins
TORONTO, Aug 5 Canada's dollar closed stronger against the greenback on Friday after earlier touching a five-week low, as a modest recovery in stock markets helped offset widespread anxiety about the global economy.
The U.S. dollar fell broadly, reversing some of the previous day's sharp gains, also because of a partial recovery in Wall Street stocks. [FRX/]
Canada's dollar had strengthened earlier in the session on a better-than-expected U.S. employment report and Canadian jobs data that showed patches of strength. But sober second thoughts about economic weakness and ongoing speculation that U.S. sovereign debt may be downgraded later spooked markets.
"Today we saw a fairly positive number out of the U.S. ... but that's just one number and the market is still quite concerned about growth in the U.S., fiscal problems in Europe and a slowing growth picture globally," said Blake Jespersen, director of foreign exchange sales at BMO Capital Markets.
The Canadian dollar CAD=D4 touched a five-week low of C$0.9851 to the U.S. dollar, or $1.0151, but strengthened to close the session at C$0.9781, or $1.0224, just above Thursday's North American close of C$0.9795.
Jespersen said some corporate buyers and exporters took advantage of the cheaper Canadian currency to bring home U.S.-dollar revenues or hedge against future currency costs.
The Canadian dollar had hit a 3-1/2 year high last month. A strong currency hurts Canadian exporters because it makes their goods more expensive abroad. Policymakers in Japan and Switzerland intervened this week to stem their rising currencies against the U.S. dollar.
"The Canadian dollar takes years and years to strengthen, but as we saw with the crisis, it takes only a few months for it to really weaken off dramatically," Jespersen said.
"We've had a lot of calls from exporters saying that this is a very very welcome relief for them, they've definitely taken advantage of this."
Camilla Sutton, chief currency strategist at Scotia Capital, said all asset classes -- from currencies to stocks to bonds -- are being hit by volatility as investors worry about the U.S. economy and European debt contagion.
"There is a lot of speculation about what is ahead and one of the rumors in the marketplace is whether or not the U.S. will suffer a downgrade over the weekend. There is tremendous amount of uncertainty generally," Sutton said.
World stocks fell for an eighth day but U.S. stocks gained ground after a dizzying descent that wiped $2.5 trillion off the value of global equities this week and brought back memories of the 2008 financial crisis. [MKTS/GLOB]
Toronto's main stock index had plunged nearly 4 percent on Friday to its lowest level since August 2010. But it recovered to trade down less than 2 percent. [.TO]
The Canadian dollar often trades hand-in-hand with stock markets as a proxy for risk. Jespersen predicted the Canadian currency will continue to follow stock markets in the weeks ahead.
A Reuters poll of global foreign exchange strategists released on Friday saw only a gradual weakening of the Canadian dollar over the next 12 months towards parity with the greenback. [CAD/POLL]
Jespersen said the breaking of several technical barriers in volatile trading this week could accelerate that.
"There is a fairly good chance we see this back towards parity in the next few weeks," he said.
Canadian government bond prices were mostly lower following the partial recovery in stocks. Canada's two-year bond CA2YT=RR fell 13 Canadian cents to yield 1.083 percent, while the 10-year bond CA10YT=RR fell C$1.27 to yield 2.642 percent. (Editing by Jeffrey Hodgson)