July 3 (Bloomberg) -- Canada's dollar fell after a U.S. government report showed the unemployment rate in the world's largest economy was unchanged and the European Central Bank signaled it may not raise interest rates again this year.

The Canadian dollar weakened versus 11 of the 16 most- traded currencies and has declined 0.8 percent this week. ECB President Jean-Claude Trichet said today's quarter-percentage point interest-rate increase to a seven-year high of 4.25 percent will help the bank bring inflation back below 2 percent.

``The Canadian dollar is getting caught along the general U.S. strength,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``There were fears that the job numbers would look worse, and Trichet would sound hawkish. Those fears are now out of the way, giving a boost to the U.S. dollar across the board.''

Canada's dollar declined 0.6 percent to C$1.0184 per U.S. dollar at 2:52 p.m. in Toronto, from C$1.0124 yesterday. One Canadian dollar buys 98.18 U.S. cents.

The loonie, as the currency is known because of the image of the bird on the one-dollar coin, has traded near parity with its U.S. counterpart this year after climbing 17 percent in 2007. It touched a 2008 low of C$1.0379 on Jan. 22, and a high of 97.12 cents per U.S. dollar on Feb. 28.

Payrolls in the U.S. fell by 62,000 last month, close to economists' median forecast of 60,000, after a revised 62,000 drop in May that was greater than initially reported, the Labor Department said today in Washington. The jobless rate was unchanged at 5.5 percent after jumping in May by the most in two decades. Canada ships about 80 percent of its exports to the U.S.

`Push and Pull'

``The move in the Canadian dollar is purely a reflection on the broader U.S. dollar move in the day,'' said Todd Elmer, currency strategist at Citigroup Global Markets in New York. ``The push and pull between slower economic growth and elevated commodity prices will continue to trap the Canadian dollar in a range.''

Canada's dollar surged 1 percent yesterday after crude oil advanced to a record. Commodities, such as crude oil and gold, account for about half of the nation's exports.

Bank of Canada

The Bank of Canada is forecast to hold the target lending rate at 3 percent through October. Policy makers unexpectedly left borrowing costs unchanged on June 10 after cutting interest rates at every meeting since December to shield the economy from the U.S.-led economic slowdown.

Canada's currency has depreciated 2 percent this year as slower growth in the U.S., Canada's biggest trading partner, reduced demand for the nation's manufactured goods such as cars and auto parts.

Gross domestic product unexpectedly contracted at a 0.3 percent annualized rate between January and March, the first drop in almost five years.

``In general, what we've seen is the Canadian dollar trading in sympathy with the U.S.,'' said John McCarthy, a director of currency trading at ING Financial Markets LLC in New York. ``If people are quite bearish in the U.S., they became bearish on the Canadian dollar. We should see a rejection of the C$1.0200 level, and maybe we drift back to C$1.0130 or C$1.0140.''

Canada's dollar will decline to C$1.07 by the second quarter of 2009, according to the median forecast of 33 analysts in a Bloomberg survey.

The two-year government bond's yield decreased 2 basis points, or 0.02 percentage point, to 3.21 percent. The price of the 3.75 percent security due in June 2010 rose 4 cents to C$101.

The difference in yields between two- and 10-year securities has narrowed to 53 basis points from 81 basis points on June 5.

Canada's two-year bond yield will drop to 3.16 percent by the end of this year, with the 10-year yield increasing to 3.91 percent, according to the median forecast in a Bloomberg survey.

To contact the reporters on this story: Haris Anwar in Toronto at hanwar2@bloomberg.netJamie McGee in New York at jmcgee8@bloomberg.net

Last Updated: July 3, 2008 14:53 EDT