* Canadian dollar rises 0.5% against the greenback
* Loonie touches its strongest since May 1 at 1.3381
* Canada adds 106,500 jobs in April
* Chances of a BoC rate cut this year fall to less than 30%
By Fergal Smith
TORONTO, May 10 (Reuters) - The Canadian dollar strengthened to a nine-day high against its U.S. counterpart on Friday, as investors slashed bets for an interest rate cut this year from the Bank of Canada after domestic data showing a record jobs gain.
The Canadian economy added 106,500 jobs in April, the biggest monthly gain on record, led by employment increases in the two most populous provinces, Ontario and Quebec, Statistics Canada data showed. That far outstripped analysts' expectations of 10,000 jobs. certainly will allay rate-cut chatter and it certainly keeps the door open for a possible rate increase later this year if the economy ticks up in the spring and summer as the Bank of Canada anticipates," said Sal Guatieri, a senior economist at BMO Capital Markets.
Chances of an interest rate cut by December fell to less than 30% from about 40% before the jobs report, the overnight index swaps market indicated. BOCWATCH
At 4:06 p.m. (2006 GMT), the Canadian dollar CAD=D4 was trading 0.5% higher at 1.3414 to the greenback, or 74.55 U.S. cents. The currency touched its strongest level since May 1 at 1.3381.
For the week, the loonie was nearly flat as a trade dispute escalated between the United States and China.
Canada runs a current account deficit and exports many commodities, including oil, so its economy could be hurt by a slowdown in the global flow of capital or trade.
U.S. crude oil futures CLc1 settled 4 cents lower at $61.66 a barrel. domestic data showed the value of Canadian building permits rose 2.1% in March, driven higher by construction plans in the four Western provinces, after falling a revised 5.1% in February. cut their bearish bets on the Canadian dollar for the third straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of May 7, net short positions had fallen to 46,115 contracts from 46,745 in the prior week.
Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 12 Canadian cents to yield 1.646% and the 10-year CA10YT=RR falling 50 Canadian cents to yield 1.733%.
The gap between Canada's 2-year yield and its U.S. equivalent narrowed 5.5 basis points to a spread of 62.9 basis points in favor of the U.S. bond, its narrowest since Jan. 16.