CANADA FX DEBT-C$ hits 4-month low as jobs decline fuels rate cut bets

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Canadian dollar weakens 0.7% against the greenback

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Touches its weakest since Nov. 24 at 1.3644

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Canada sheds 2,200 jobs in March

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Canada-U.S. 2-year spread widens to 56 basis points

By Fergal Smith

TORONTO, April 5 (Reuters) - The Canadian dollar weakened to a four-month low against its U.S. counterpart on Friday as domestic data showing a surprise decline in jobs raised expectations the Bank of Canada would begin cutting interest rates in June.

Canada's economy shed 2,200 jobs in March, missing estimates for a gain of 25,000, while the jobless rate increased to a new 26-month high of 6.1%.

"Today's data confirms that the Canadian economy isn't as strong as official GDP data and the BoC are making out, and that substantial rate cuts are needed," said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.

"As markets come around to this inevitability and start to price increasingly diverging paths for the BoC and Fed, it should lead USD-CAD up to our 3-month forecast of 1.38."

Investors see a roughly 80% chance the Canadian central bank would begin cutting rates in June, up from 68% before the data. A June start to rate cuts was also the view of the majority of economists in a Reuters poll.

The Canadian dollar was trading 0.7% lower at 1.3630 to the U.S. dollar, or 73.37 U.S. cents, after touching its weakest level since Nov. 24 at 1.3644.

Separate data showed U.S. job growth beating expectations, boosting the U.S. dollar against a basket of major currencies.

The price of oil, one of Canada's major exports, steadied at about $86.50 a barrel, holding on to some recent gains as geopolitical tensions rose in the Middle East.

Canada's 2-year yield eased 4.8 basis points to 4.136%, while the gap between it and the U.S. equivalent widened by about 11 basis points to 57 basis points in favor of the U.S. note, its widest gap since Dec. 8. (Reporting by Fergal Smith; Editing by Andrea Ricci)