CANADA FX DEBT-C$ hits session high on firm data; U.S. jobs eyed

 * C$ hits session high of C$0.9564, or $1.0456

 * C$ pares gains ahead of U.S. non-farm payroll data

 * Bonds fall across curve on expectation of firm U.S. data

 TORONTO, July 8 (Reuters) - The Canadian dollar firmed to a
session high against the U.S. dollar on Friday following
unexpectedly strong Canadian employment data, before paring
gains to trade flat ahead of key U.S. jobs figures.

 The domestic economy generated a surprising 28,400 jobs in
June, compared with the 15,000 expected by markets and
contrasted with other signs the economic growth was starting to
slow. The unemployment rate held steady at 7.4 percent as more
people entered the labor market. [ID:nN1E767019]

 The overall strength of the report was seen increasing the
possibility of a Bank of Canada rate hike later this year.
Higher interest rates tend to help currencies by attracting
international capital flows.

 "It's certainly suggesting the domestic environment shows
signs of strengthening. We did maybe see a bit of a pause
through the second quarter, but this pick-up of employment late
in the second, it bodes well for the rebound in the second half
of the year," said Paul Ferley, assistant chief economist at
Royal Bank of Canada.

 The currency CAD=D4 strengthened to a session high of
C$0.9564 to the U.S. dollar, or $1.0456, up from C$0.9581 just
prior to the data's release. It finished at C$0.9587 on
Thursday.

 At 7:35 a.m. (1135 GMT), the currency stood at C$0.9586 to
the U.S. dollar, or $1.0432 ahead of the U.S. employment data
at 8:30 a.m.

 "I'd almost regard this as almost a neutral to ever so
slightly positive report for the Canadian dollar," said Doug
Porter deputy chief economist at BMO Capital Markets, adding
that the movement in the dollar today was more likely to be
determined by the tone of the U.S. jobs market data.

 Overnight index swaps, which trade based on expectations
for the key central bank rate, showed that traders priced in an
increased probability of rate hikes in September, October and
December, though a full 25-basis-point rate hike was not priced
in until 2012. BOCWATCH

 Canadian bond prices, especially at the short end of the
curve, weakened after the data.

 The Canadian government two-year bond CA2YT=RR was down
4 Canadian cents to yield 1.597 percent. It yielded 1.581
percent before the data. The 10-year bond CA10YT=RR lost 8
Canadian cents to yield 3.067 percent.
 (Additional reporting by Euan Rocha; Editing by Jeffrey
Hodgson)