* Canada economy adds 58,300 jobs, more than expected
* C$ firms to session high, pares gains
* Bond prices weaken across yield curve
* Interest rate hikes expected in July at the earliest
By Ka Yan Ng
TORONTO, May 6 (Reuters) - Canada's dollar jumped to a session high against the U.S. dollar on Friday, while bond prices eased, after data showed Canada's employment picked up steam in April.
The economy created far more jobs than expected and recovered all the full-time positions lost in the recession, setting the stage for solid second-quarter growth and interest rate hikes later this year.
Net job creation totaled 58,300 in the month, Statistics Canada said on Friday, exceeding the forecast in a Reuters poll of a 22,500 gain. Details of the report were less impressive as most of the job creation was in part-time positions and in the services sector where wages tend to be lower. [ID:nN06228750] ECONCA
The domestic jobs data reinforces market expectations the Bank of Canada will see no need to resume hiking interest rates until July at the earliest, following three increases last year to 1.0 percent.
"The bigger issue for the Bank of Canada is the sharp downward correction in the whole risk trade," said Derek Holt, economist at Scotia Capital, noting that the recent sharp reversal in commodity prices will ease up on some some of the global inflationary pressures.
"That's by far the more important factor I think."
He said this could explain why the Canadian dollar's initial reaction was to firm mildly -- rising 35 ticks to a session high at C$0.9600 -- but then erase that gain on second thought.
The commodity-linked currency, however, was still firmer from the previous session's close even as the price of oil fell further on Friday.
At 7:53 a.m. (1153 GMT), the Canadian dollar CAD=D4 was at C$0.9644 to the U.S. dollar, or $1.0369, up from Thursday's finish at C$0.9682 to the U.S. dollar, or $1.0328.
The currency slumped to its lowest level against the U.S. dollar in more than two weeks on Thursday as the wave of selling across commodity markets accelerated on weak economic data and a discouraging outlook.
Overnight index swaps, which trade based on expectations for the key central bank rate, showed investors slightly increasing bets on rate hikes throughout the rest of 2011 just after the data was published.
The two-year bond CA2YT=RR, which is especially sensitive to Bank of Canada interest rate moves, slid 7 Canadian cents to yield 1.697 percent.
"Twos did certainly sell off a bit. I think that's probably where you'll see the move, primarily in the front end," said said David Tulk, chief Canada macro strategist at TD Securities.
Attention now shifts to the U.S. nonfarm payrolls, due at 8:30 a.m. The report is expected to show the U.S. economy created 186,000 jobs last month, according to a Reuters survey of economists. In March payrolls rose by 216,000 which was the biggest increase in 10 months.
(Reporting by Ka Yan Ng)