CANADA FX DEBT-C$ weakens as U.S. data sours mood

* C$ ends at C$0.9889 vs US$, or $1.0112
    * Canada notches mixed performance against currency crosses
    * Currency seen weakening to US$ parity in 12 months
    * Bond prices higher across curve

    By Jennifer Kwan	
    TORONTO, May 3 (Reuters) - Canada's dollar fell against its
U.S. counterpart on Thursday as weaker-than-expected economic
data raised concerns about the outlook for the country's largest
trading partner ahead of a key U.S. labor report due on Friday.	
    Markets faltered after data showed tepid growth in the U.S.
services sector. Stocks turned lower, government debt pared
losses and the U.S. dollar trimmed gains against the yen after
the Institute for Supply Management said its services sector
index fell to 53.5 in April from 56.0 in March. 	
    The currency, which had been a relative outperformer against
the G10 currencies on ramped-up expectations of a Bank of Canada
rate hike, got caught up in the downward spiral.	
    "The ISM was a little softer than people expected and is
probably weighing on sentiment a little bit. A weaker U.S.
economy does not bode well for Canada so that probably accounts
for a little bit of the underperformance," said Benjamin
Reitzes, senior economist and foreign exchange strategist at BMO
Capital Markets.	
    "We've seen expectations for the Bank of Canada back off of
late so you may be seeing a reversal of long Canadian dollar
positions as those expectations come off," he added. 	
    The Canadian currency finished at C$0.9889 versus
the greenback, or $1.0112, down slightly from its Wednesday
finish at C$0.9865 against the greenback, or $1.0137.	
    Canada's dollar outperformed slightly against the New
Zealand and Australian dollars, as well as the Mexican peso and
Swedish crown. However, it was weaker against other majors
including the euro and Japanese yen.	
    Canada has held up well in recent weeks on comments by the
Bank of Canada. The central bank surprised investors last month
with a more positive domestic economic outlook and an explicit
warning that it may have to start raising rates again from its
current 1 percent. 	
    "Canada has more or less held gains since the Bank of
Canada. There's a myriad of reasons why one would want to buy
Canada from a relative value perspective looking at the
economics, the hawkish stance by the bank," said Jack Spitz,
managing director of foreign exchange at National Bank
Financial, who saw the currency sticking in a range of C$0.9800
and C$0.9900 against the greenback.	
    But those rate hike expectations are easing.  After soaring
to a seven-month high in April on more hawkish language from the
central bank, the Canadian dollar will trade at softer levels in
coming months and weaken to parity with the U.S. dollar a year
from now, a Reuters poll showed. 	
    Economic reports have been mixed in recent weeks, giving
investors no clear signal on the strength of the North American
economic recovery. As well, flare-ups in the European debt
crisis have given traders pause.	
    All eyes will be on key U.S. jobs data due on Friday.	
    Nonfarm payrolls data is expected to show hiring by U.S.
employers rebounded in April, which could ease fears that the
economy has stumbled into a soft patch. 	
    Businesses outside the farm sector are expected to have
added 170,000 jobs last month, according to a Reuters survey,
after rising a meager 120,000 in March. The unemployment rate is
seen holding at a three-year low of 8.2 percent. 	
    Canadian bond prices were mostly higher across the curve
with Canada's two-year bond up 2 Canadian cents to
yield 1.303 percent, while the benchmark 10-year bond
 was up 20 Canadian cents to yield 2.086 percent.