* C$ climbs to 98.27 U.S. cents
* Bonds fall hard after U.S. data
By Ka Yan Ng
TORONTO, Aug 4 (Reuters) - The Canadian dollar closed above 98 U.S. cents for the first time since mid May on Wednesday, while bonds slid, as the latest data releases brightened the outlook for the U.S. economy.
The ADP Employment Services report indicated a job gain of 42,000 in July in the U.S. private sector, compared with expectations of 40,000, while a report by the Institute for Supply Management showed increased growth in the U.S. service sector in July. [ID:nN04224566]
"For the first time in a while some positive data out of the United States. It's been such an unabating stream of negative news," said David Tulk, senior macro strategist at TD Securities.
"That sentiment has helped underpin U.S. equities and has given some lift to riskier assets," he added.
Both reports were a bit stronger than expected, but showed job growth remains tepid. They came ahead of the much more comprehensive U.S. labor market report for July on Friday, which is a focal point for markets this week.
Canada is also set to publish July jobs data on Friday, the main domestic market event of the week, with forecasters expecting a modest gain of 15,000 jobs and a steady unemployment rate at 7.9 percent. [ID:nN30270191]
The Canadian dollar closed at C$1.0176 to the U.S. dollar, or 98.27 U.S. cents. That compared with C$1.0239 to the U.S. dollar, or 97.67 U.S. cents, at Tuesday's close.
Although the Canadian dollar CAD=D4 bettered the six-week high at 98 U.S. cents it hit earlier this week, the currency is still largely in the C$1.02-C$1.07 range it has been in since last October, save for a foray to parity in April, and a few brushes in the C$1.08 area in the past 10 months.
Analysts say the currency's recent climb has been held back by concerns about economic growth in the United States, Canada's biggest trading partner.
AUCTION MEETS WITH SOLID DEMAND
Canadian government bond prices slid hard following the U.S. economic data, and underperformed across the curve.
The yield on Canadian 10-year bond was 21.2 basis points above the comparable U.S. bond, compared with 20.5 basis points in the previous session.
The two-year bond CA2YT=RR fell 20 Canadian cents to yield 1.538 percent, while the 10-year bond CA10YT=RR was off 50 Canadian cents to yield 3.171 percent.
Earlier, Canada's auction of three-year bonds met with robust demand. [ID:nN04262458]
"It was a very strong auction," said Fergal Smith, managing market strategist at Action Economics. "It's been consistent with sustained strength for Canadian bond auctions." (Editing by Peter Galloway)