UPDATE 2-Canada job market stalls in October after hefty gains

* Economy adds 1,800 net new jobs; forecast was for 5,000

* Unemployment rate unchanged at 7.4 percent

OTTAWA, Nov 2 (Reuters) - Canada's job market stalled in October after two months of strong hiring, Statistics Canada data showed on Friday, confirming expectations employment gains would ease to reflect sluggish economic growth.

The economy added 1,800 jobs in the month, even lower than the small increase of 5,000 jobs forecast in a Reuters poll, while the unemployment rate held steady at 7.4 percent.

The country created 52,100 jobs in September and 34,300 in August. Due to the volatility of the data from month to month, analysts prefer to look at three- or six-month moving averages, which show monthly gains of 29,400 and 12,100, respectively.

Economists have argued that with the economy expanding at about a 2 percent rate, employment growth of the magnitude seen in the previous two months was not sustainable.

``It's not too surprising to find the Canadian labor market take a bit of a breather. The underlying details are still fairly positive,'' said David Tulk, chief Canada macro strategist at TD Securities.

``It's consistent with growth slowing into the third quarter and then recovering slowly thereafter,'' he told Reuters. The Bank of Canada last week slashed its forecast for third-quarter growth on an annualized basis to 1 percent from 2 percent, citing a greater degree of slack in the economy.

The Canadian dollar strengthened to a one-week high against its U.S. counterpart after data showed U.S. employers stepped up hiring in October.

The Canadian currency traded as high as C$0.9955 to the greenback, or $1.0045, its strongest level since Oct. 26.

It had traded at C$0.9981, or $1.0018, just before the jobs reports were released, and closed Thursday's North American session at C$0.9968, or $1.0032.

``I think this one will be forgotten within about five minutes simply because the U.S. number is going to dominate here - the U.S. number was a little bit more of a surprise than Canada,'' said Doug Porter, deputy chief economist at BMO capital markets.

All the gains in Canadian employment in October were in full-time positions, with the number of workers in the private sector shrinking and the public sector adding to its payrolls.

The goods-producing sector lost a net 19,300 jobs, dragged down mainly by agriculture. The services sector created some 21,000 positions, with the biggest gains seen in educational services.

Canada recovered all the jobs lost during the 2008-09 recession by January 2011 and has since added another 390,000 jobs. The unemployment rate, however, remains stubbornly higher than the 6.1 percent rate just before the downturn.

Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders resumed placing small bets on a rate hike in late 2013 after the U.S. and Canadian jobs data.