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Canadian employers added jobs for the second straight month in September, and the unemployment rate unexpectedly fell, adding to evidence the U.S.’s largest trading partner is emerging from its recession and raising the likelihood of a central bank rate increase within the next year.

Employment rose by 30,600, Statistics Canada said today in Ottawa. The jobless rate fell to 8.4 percent from August’s 8.7 percent. The median forecast of 23 economists surveyed by Bloomberg was for a 5,000 increase in employment and a jobless rate at 8.8 percent.

The Canadian dollar rose on the report and yields on Canadian interest rate swaps gained, as investors anticipate the data may increase pressure on the Bank of Canada, with its benchmark rate at a record low, to follow Australia into raising borrowing costs.

“Certainly on the back of what we saw from the central bank of Australia, the report has the potential to lift markets up,” said Stewart Hall, an economist at HSBC Securities in Toronto. He added such an expectation would be misplaced given Canada is more closely linked to the lagging U.S. economy than Australia, and Canada’s recovery will be more “incremental.”

The Bank of Canada lowered its benchmark lending rate to 0.25 percent this year and pledged to keep it there until June 2010 unless the inflation outlook changes materially.

Australia No Precedent

Bank of Canada Senior Deputy Governor Paul Jenkins said yesterday that this week’s surprise Australian rate increase isn’t necessarily a precedent for Canada.

The yield on Canada’s overnight index swap due in one year, a security based on investor expectations of where the Bank of Canada’s rate will be at that point, rose above 0.6 percent today for the first time since February, and was trading at 0.62 percent at 9:42 a.m. today. The yield on 9-month swaps rose to 0.436 today from 0.388 yesterday.

The Canadian dollar advanced 0.6 percent to C$1.0458 per U.S. dollar at 10:12 a.m., from C$1.0518 yesterday.

Recovering factory sales and a buoyant housing market is driving the country’s recovery, following three quarters of economic contraction that began at the end of last year.

The latest data include a 7.2 percent rise in August building permits, a larger than expected increase in spending by purchasing managers last month, and a third consecutive monthly increase in home prices, according to the July reading of the Teranet-National Bank price index easy pay day loans.

‘Difficult Balancing Act’

“It’s probably going to be a pretty difficult balancing act for the bank over the next little while, particularly if we see the strength in the domestic housing sector continue and Canada continue to produce some better employment data,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, in a telephone interview.

“At the moment we’re not expecting them to go before the middle of the year, but certainly the risks of them going sooner rather than later are increasing at the moment,” Osborne said.

The public sector, along with manufacturing and construction, led the rise in September employment. Government entities added 36,400 jobs during the month while construction, benefiting from rising home prices and a government stimulus package that targets the industry, added 24,600 jobs during the month.

Manufacturing firms, which have fired more than 200,000 workers since the start of the recession at the end of last year, added 26,100 jobs. Eight of the 16 industries tracked by Statistics Canada recorded job gains.

Full-time Jobs

A 91,600 increase in full-time jobs was offset by a 61,000 decline in part-time employment, the statistics agency said. The country lost 17,100 private-sector jobs.

Canadian average hourly wages rose 2.5 percent in September from a year earlier, the slowest pace in two and a half years, Statistics Canada said today.

Today’s data follow statements by Canadian leaders that the jobless rate will continue rising in coming months even as the country emerges from a recession.

Prime Minister Stephen Harper said last month the country probably remains in recession because of “challenges” in the job market, even as recent signs of recovery have helped fuel rallies in the stock market and currency.

“We have anticipated that we will have some continuing job losses,” Finance Minister Jim Flaherty said in an Oct. 4 interview, two days after the U.S. Labor Department reported that country’s unemployment rate reached the highest level since 1983. “The job comeback will lag the comeback in the real economy.”

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