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CANADA FX DEBT-C$ hits 2-week high on rosy U.S., Canada jobs data

(Adds comment, details)

* C$ strengthens to C$0.9746, or $1.0261

* Canadian currency at its strongest since Sept. 21

* Bank of Canada's hawkish tone remaining tenable

By Alastair Sharp

TORONTO, Oct 5 (Reuters) - Canada's dollar climbed to a two-week high against its U.S. counterpart on Friday after jobs data showed the North American labor market had improved in September.

The U.S. unemployment rate dropped to a near four-year low of 7.8 percent in September, while Canada added a thumping 52,100 jobs, almost all of them full-time, defying expectations and bolstering the Bank of Canada's case for an eventual interest rate rise.

"I think the key point here is the economy is still churning out jobs at a healthy pace," said Doug Porter, deputy chief economist at BMO Capital Markets. "I think the combination of figures is unambiguously positive for the Canadian dollar."

The Canadian dollar

jumped sharply against the U.S. dollar, which itself gained against the Japanese yen .

By 9:45 a.m. (1345 GMT) the Canadian currency was trading at C$0.9746 to the greenback, or $1.0261, compared to C$0.9810, or C$1.0194, just before the data was released. At one point it hit C$0.9735, its strongest level since Sept. 21.

"Certainly, it dispels some of the concern through the second quarter where we were getting some indication of maybe a stalling in job growth; these last two months have put to rest those concerns," said Paul Ferley, Royal Bank of Canada's assistant chief economist.

Canadian government bond prices fell, with the two-year bond

slipping 13 Canadian cents to yield 1.153 percent, while the benchmark 10-year bond

fell by 50 Canadian cents, to yield 1.816 percent.

The slip in the price of government debt showed a move out of perceived safe-haven assets, as well as an assumption that the Bank of Canada has more leverage to potentially raise interest rates, an intention it repeated Thursday. {ID:nL1E8L4667]

"This positive Canadian jobs data will definitely put pressure on the Bank of Canada to raise rates sooner rather than later and maintain its hawkish tone towards raising rates," Rahim Madhavji from Knightsbridge Foreign Exchange wrote in a note to clients.

(Additional reporting by Andrea Hopkins; Editing by Bernadette Baum)

((alastair.sharp@reuters.com)(+1 416 941 8118)(Reuters Messaging: alastair.sharp.reuters.com@reuters.net))

Keywords: MARKETS CANADA/DOLLAR BONDS