* Canadian dollar at C$1.2650, or 79.05 U.S. cents
* Loonie touches its weakest since July 18 at C$1.2667
* Bond prices move lower across a steeper yield curve
* Canada adds 10,900 jobs in July; trade deficit jumps in June
By Alastair Sharp
TORONTO, Aug 4 (Reuters) - The Canadian dollar notched its weakest close in more than two weeks against its U.S. counterpart on Friday as the greenback surged after a strong U.S. jobs report and domestic data showed a jump in Canada's trade deficit.
"It's the long-anticipated corrective bounce in dollar-Canada", pushed mostly from the greenback side in reaction to the U.S. jobs data, said Bipan Rai, a senior macro strategist at CIBC Capital Markets.
At 4 p.m. ET (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.2650 to the greenback, or 79.05 U.S. cents, down 0.5 percent.
The loonie fell 1.7 percent against the greenback this week, but is still up nearly 9 percent since early May.
Canada's economy added 10,900 jobs in July, mostly in full-time employment, Statistics Canada said, while the jobless rate fell to its lowest since October 2008. the country's trade deficit swelled to C$3.60 billion in June from a revised C$1.36 billion shortfall in May, with a drop in energy shipments weighing on exports. the market doesn't pay that much attention to the trade data," said TD Securities senior rates strategist Andrew Kelvin. "But this is an awfully big downside surprise"
The U.S. dollar .DXY rallied against a basket of major currencies after U.S. employers hired more workers than expected in July and raised their wages, signs of labor market tightness that is likely to clear the way for the Federal Reserve to announce a plan next month to start shrinking its massive bond portfolio. increased bullish bets on the loonie to the highest level since January 2013, according to data from the U.S. Commodity Futures Trading Commission and Reuters calculations. Canadian dollar net long positions rose to 40,638 contracts as of Aug. 1 from 26,613 contracts a week earlier.
The currency's strongest level of the session was C$1.2554, while it touched its weakest since July 18 at C$1.2667.
Still, it has rallied more than 9 percent since early May, helped by the Bank of Canada raising interest rates last month for the first time in nearly seven years.
Prices of oil, one of Canada's major exports, rose on Friday but were down on the week, pressured by rising OPEC exports and strong U.S. output. O/R
Canadian government bond prices fell across a steeper yield curve, with the two-year CA2YT=RR price off 1 Canadian cent to yield 1.243 percent and the 10-year CA10YT=RR down 24 Canadian cents to yield 1.921 percent.