* Canadian dollar rises 0.6 percent against greenback
* Canada adds a record 94,100 jobs in November
* Price of U.S. oil rises 4.2 percent
* Canadian bond prices fall across flatter yield curve
* Gap between 2- and 10-year yields narrows to 7.3 basis points
By Fergal Smith
TORONTO, Dec 7 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday as higher oil prices and data showing a record increase in domestic jobs bolstered expectations for further interest rate hikes from the Bank of Canada.
Expectations for rate hikes had moderated this week after the Bank of Canada left rates on hold on Wednesday and fretted about the impact on the economy of a sharp drop in the price of oil, one of Canada's major exports, since October.
"We still have to deal with the coming negative hit to the economy from Alberta's production cuts in Q1 (first quarter), so I think that's going to remain the Bank of Canada's focus," said Derek Holt, vice president of capital markets economics at Scotiabank. "But at the margin if we keep getting numbers like this, it could well keep the bank on track to hiking."
Chances of a rate hike in March rose to 43 percent from 33 percent before the employment data. BOCWATCH
At 9:20 a.m. (1420 GMT), the Canadian dollar CAD=D4 was trading 0.6 percent higher at 1.3304 to the greenback, or 75.17 U.S. cents.
The currency, which Thursday hit its lowest in nearly 18 months at 1.3445, traded in a range of 1.3285 to 1.3400.
The Canadian economy added 94,100 jobs in November on higher full-time hiring, and the unemployment rate dipped to a new all-time low of 5.6 percent, Statistics Canada said. Economists had forecast a jobs gain of 11,000. prices jumped as big Middle East producers in the Organization of the Petroleum Exporting Countries agreed to reduce output to drain global fuel inventories and support the market. O/R
U.S. crude CLc1 prices were up 4.2 percent at $53.67 a barrel.
The U.S. dollar .DXY erased gains against a basket of major currencies after data showed U.S. job growth slowed in November and monthly wages increased less than expected, suggesting some moderation in economic activity that could support expectations of fewer interest rate increases from the Federal Reserve in 2019. government bond prices were lower across a flatter yield curve, with the two-year CA2YT=RR price down 8.2 Canadian cents to yield 2.036 percent and the benchmark 10-year CA10YT=RR falling 14 Canadian cents to yield 2.109 percent.
The gap between Canada's 2-year yield and its 10-year yield narrowed by 2.8 basis points to a spread of 7.3 basis points, its narrowest since September 2007.