CANADA FX DEBT-C$ weakens as U.S. jobs data eclipses Canada trade figures

* Canadian dollar at C$1.0678 or 93.65 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, July 3 (Reuters) - The Canadian dollar weakened
against the greenback on Thursday as data showing the country's
trade deficit narrowed more than expected in May was
overshadowed by a U.S. report that showed strong jobs growth
south of the border in June.
    The robust employment report showed the U.S. economy added a
greater-than-expected 288,000 jobs last month, boosting the U.S.
dollar to the detriment of the loonie. 
    The U.S. figures erased early Canadian dollar strength and
dimmed the impact of a report that showed a narrowing of
Canada's trade gap in May as growth in exports picked up.
    Still, the weakening of the Canadian dollar was relatively
modest and stronger jobs growth in the United States should
ultimately benefit Canada, said Mark Chandler, head of Canadian
fixed income and currency strategy at Royal Bank of Canada in
    "Given the magnitude of the positive surprise, I think we've
hung in pretty well," Chandler said.
    The Canadian dollar was at C$1.0678 to the
greenback, or 93.65 U.S. cents, weaker than Wednesday's close of
C$1.0667, or 93.75 U.S. cents.
    The pullback came a day after the currency hit a six-month
high. The Canadian dollar rallied through much of June, fueled
in part by surprisingly strong inflation figures. Investors are
now turning their attention to how the Bank of Canada might
address those figures in its monetary policy statement in
    "If there's any pending weakness coming in the Canadian
dollar, it would be for the Bank of Canada to try to replace
their concerns about inflation with something else and see how
that sits with the foreign exchange market," Chandler said.
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 3-1/2 Canadian
cents to yield 1.152 percent and the benchmark 10-year
 down 24 Canadian cents to yield 2.349 percent.
    Moody's Investors Service late on Wednesday assigned a
"negative" outlook to Ontario's debt and issuer ratings, revised
from "stable", but at the same time affirmed its Aa2 ratings. 
    Moody's said the change in outlook reflects the rating
agency's assessment of the risks surrounding the province's
ability to meet its medium-term fiscal targets. The yield on
10-year Ontario bonds was up at 3.182

 (Editing by Peter Galloway)