WRAPUP 2-Canada loses jobs but full-time positions surge

* Economy loses 1,500 jobs vs forecast of 26,500 gain

* Unemployment rate drops to 7.7 pct from 7.8 pct

* Shift to full-time jobs in private sector

* Housing starts top expectations

* Rates seen on hold next week; hike seen likely in July
(Adds details on housing starts)

By Louise Egan

OTTAWA, April 8 (Reuters) – Canada’s economy unexpectedly
lost jobs in March but a huge jump in full-time positions
suggested solid economic growth and bolstered expectations the
central bank will raise interest rates later this year.

The “curveball” report initially knocked the Canadian
dollar lower. But traders, seeing signs of strength beneath the
weak headline figure, then pushed the currency to its strongest
level since November 2007. [CAD/]

Statistics Canada reported on Friday net job losses of
1,500 in March, the first decline since September and a figure
that was contrary to analyst forecasts for a gain of 26,500.

But the report showed employers hired a whopping 90,600
full-time workers in the month, offset by a slightly bigger
decline in part-time jobs.

The unemployment rate dropped to 7.7 percent from 7.8
percent in February, as expected, but is still stubbornly high
compared with pre-recession levels.

The report did not change expectations that the bank will
keep its key interest rate on hold on Tuesday at 1 percent, but
could affect the timing of its next move.

“The (central) bank should take away from this that the
economy itself is on pretty decent footing when it comes to the
labor market,” said Mark Chandler, head of fixed income and
currency strategy at RBC Capital Markets.

“The headline number, which I’m sure will get a lot of play
in the election campaign, really was the least important point
of the report.”

Employment is a big theme for politicians campaigning for
the May 2 federal election, especially in voter-rich Ontario
where manufacturers are still struggling in the aftermath of
the recession.

Conservative Prime Minister Stephen Harper is campaigning
on his economic track record. Opposition parties say he has
ignored the needs of middle-class Canadians, while cutting
taxes for big corporations.

Housing starts beat expectations in March with a 2.8
percent rise from February to 188,800 units, Canada Mortgage
and Housing Corp said in a separate report. [ID:nHND005502]

The once-overheated housing market appears to be
stabilizing and will no longer be a main driver of economic
growth, as it was until mid-2010, analysts said.

Policy makers now say business investment is crucial to
keep growth momentum, and the surge in full-time positions as
well as strong private sector hiring in March were hopeful
signs companies are expanding and gaining confidence.
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Graphic on Canadian jobs and unemployment:

http://r.reuters.com/kev88r
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RATE HIKES ON HORIZON

The central bank will update its outlook on growth and
inflation in a quarterly report on Wednesday, following the
rate announcement. Analysts will be keen to see if it signals
monetary tightening on the horizon, given robust growth and
high commodity prices that may pressure inflation levels.

“We do not expect that the bank will likely change the
overall dovish tone or sentiment adopted in January, given the
litany of risks that continue to circle the horizon,” said
Stewart Hall, economist of HSBC Securities Canada in a note.

Other analysts predicted a more hawkish tone.

A Reuters poll released on Thursday showed analysts see
zero chance of a rate hike by the central bank next week,
though most are betting on a move in July. [CA/POLL]

Overnight index swaps, which trade based on expectations
for the key central bank rate, showed investors betting a rate
increase would come slightly earlier than previously thought.
The swaps now show a high probability of an increase in July,
with a quarter-point hike fully priced in by September.
(BOCWATCH: Quote, Profile, Research)

Wage inflation clicked higher in March with a 2.6 percent
annual rate in the measure most closely watched by the bank.
(Additional reporting by Chandra Ramarathnam, John McCrank,
Claire Sibonney and S. John Tilak; editing by Kenneth Barry and
Peter Galloway and Rob Wilson)

WRAPUP 2-Canada loses jobs but full-time positions surge