CANADA FX DEBT-C$ falls as oil rally cools, job market stalls

* Canadian dollar at C$1.2921, or 77.39 U.S. cents
    * Loonie touches weakest level since April 18
    * Bond prices higher across the maturity curve

    By Fergal Smith
    TORONTO, May 6 (Reuters) - The Canadian dollar weakened to a
fresh two-week low against its U.S. counterpart on Friday as oil
prices fell and Canada's labor market stalled, while a wildfire
in Alberta weighed on the country's economic outlook.
    Canada lost 2,100 jobs in April as the oil-rich province of
Alberta shed still more jobs in its natural resources sector,
data from Statistics Canada showed. Economists had forecast that
the labor force would be unchanged after a strong gain in March.
    "The details were on the weak side," said Doug Porter, chief
economist at BMO Capital Markets, including a another big
decline in manufacturing employment.
    Oil prices fell as investors cashed in on a 20-percent rise
over the past month. U.S. crude prices were down 1.06
percent to $43.85 a barrel. 
    Production cuts in Alberta's oil sands due to a raging
wildfire may bring Canadian economic growth to a standstill in
the second quarter, leaving the central bank on the sidelines
and weighing on the Canadian dollar, economists warned.
    At 9:38 a.m. EDT (1338 GMT), the Canadian dollar 
was trading at C$1.2921 to the greenback, or 77.39 U.S. cents,
weaker than Thursday's close of C$1.2868, or 77.71 U.S. cents.
    The currency's strongest level of the session was C$1.2838,
while it touched its weakest since April 18 of C$1.2952.    
    Economists, however, said the drop in Canadian employment
was not deep enough to impact monetary policy.
    Overnight index swaps imply a 22 percent chance of a Bank of
Canada interest rate cut this year, little changed from before
the data, but a swing from a 20 percent chance of a hike seen at
the beginning of the week.    
    Meanwhile, U.S. employment data cast doubts on whether the
Federal Reserve will raise rates before the end of the year.
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 1.5
Canadian cents to yield 0.561 percent and the benchmark 10-year
 rising 6 Canadian cents to yield 1.351 percent.
    The Canada-U.S. 10-year spread was 2.1 basis points more
negative at -41.1 basis points, its largest gap since April 21,
as Canadian government bonds outperformed.

 (Editing by Paul Simao)