Sept. 5 (Bloomberg) -- Canada's dollar rose after a government report showed the nation's employers added more jobs in August than forecast, bolstering speculation the Bank of Canada won't cut borrowing costs next month.

The currency also gained after another report showed the U.S., Canada's biggest trade partner, lost more jobs than forecast in August and its unemployment rate climbed to a five- year high. The data fueled expectations the Federal Reserve will cut rather than raise interest rates.

``The overall trend for the Canadian dollar is higher,'' said Maria Jones, a currency strategist at TD Securities in Toronto, a unit of Canada's third-largest bank. ``As far as the U.S. numbers are concerned, what's important is not necessarily the jobs report, but the unemployment rate says clearly the Fed is not going to hike rates any time soon, so we should see some retracement in the dollar strength that will bode well for the Canadian dollar.''

Canada's currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, gained 0.4 percent to C$1.0650 per U.S. dollar at 12:15 p.m. in Toronto, from C$1.0696 yesterday. One Canadian dollar buys 93.90 U.S. cents.

The loonie rose against 15 of the 16 most-actively traded currencies. It pared gains after the Ivey purchasing managers' index for August unexpectedly fell to 51.5, the lowest since December, showing that Canadian business and government spending increased at a slower pace.

`Quite Credible'

The Bank of Canada left its benchmark interest rate unchanged on Sept. 3 at 3 percent. The rate is ``appropriately accommodative,'' while inflationary pressures ``remain elevated,'' the central bank said.

Today's economic reports were ``the big test'' for the bank's decision, said David Watt, a senior currency strategist in Toronto at RBC Capital markets Inc.

``These numbers are more consistent with an economy that is slowing, but isn't in as much trouble as previously thought,'' Watt said. ``The Bank of Canada's stance still seems quite credible.''

The next decision on interest rates is scheduled Oct. 21.

The Canadian economy added 15,200 jobs last month after a loss of 55,200 positions in July, Statistics Canada said in Ottawa today. The median forecast of 23 economists surveyed by Bloomberg News was for an increase of 10,000. Canada's unemployment rate held at 6.1 percent.

U.S. payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said in Washington. The U.S. jobless rate jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month.

Canada's currency will slip to C$1.10 against the U.S. dollar by the end of 2009, according to the median forecast of economists surveyed by Bloomberg.

The yield on the two-year Canadian government bond was little changed at 2.70 percent. The price of the 2.75 percent security due in December 2010 fell 2 cents to C$100.11.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

Last Updated: September 5, 2008 12:21 EDT