February job growth weaker than expected

Canada sheds 24,000 full-time jobs, adds 39,000 part-time jobs

(Reuters) - Canadian job creation slowed in February after robust gains in January, disappointing markets and easing pressure on the Bank of Canada to raise interest rates early this year.

Net employment gains in the month were a modest 15,100, below market forecasts of a 21,000 increase, said a Statistics Canada report.

The report disappointed hopes that hiring momentum in the previous two months would persist. Net job gains were 69,200 in January and 30,400 in December.

Canada has recovered jobs lost during the recession faster than the United States but the February data bucked that trend. U.S. employers hired workers at the fastest pace in nine months in February, according to a Labor Department report.

In further signs of slowing, Canada's labour report said the economy shed 24,000 full-time positions in February, partially offset by the addition of 39,000 part-time jobs. The number of self-employed workers rose, while the number working in the private sector edged lower.

The February jobless rate was unchanged at 7.8 per cent, versus the 7.7 per cent forecasts by analysts in a Reuters poll.

The report knocked the Canadian dollar to a two-week low and prompted money market and bond traders to scale back rate-hike expectations.

"The labour market is not going to create any further inflationary pressure, either coming from wage (gains) or the general strength in the labor markets," said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities.

"It gives a bit more breathing room for the bank to stay on the sidelines especially since all the risks out there are quite elevated."

The average hourly wage of permanent employees — which is closely watched by the Bank of Canada for inflation pressures — rose 2.5 per cent from February 2010, up from 2.3 per cent year-on-year rate in both January and December.

The central bank has held its overnight lending target at 1 per cent since September, after three consecutive increases, and has cautioned the red-hot Canadian dollar is hindering exports and restraining the recovery.

Most dealers and global strategists surveyed by Reuters before the bank's last rate decision on March 1 expected the bank to hike again in the first half of 2011, with May 31 seen as the most likely date for the next move.

Overnight index swaps, which trade based on expectations for the key central bank rate, showed investors see a 99.12 per cent chance the bank will keep rates on hold on April 12, up from 91.91 per cent before the employment report.

"It probably lowers the probability of any near term tightening by the Bank of Canada and as a result (will) probably weigh on the Canadian dollar," said Paul Ferley, assistant chief economist at the Royal Bank of Canada.

"That said, the miss was fairly small in terms of the unemployment," he said.

The Canadian dollar fell as low as C$0.9791 to the U.S. dollar, or $1.0213, from C$0.9768 to the U.S. dollar, or $1.0238, shortly before the data.

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