The major piece of economic data was the Canadian employment report for April. The loonie rallied ahead of the release as crude hit $125 for the first time, but added another quarter-cent on an unexpected increase in the Canadian jobs market. Statistics Canada said the economy added 19,200 new jobs in April, with construction and hospitality industries leading the way. Economists were expecting to see 10,000 new jobs.

Tempering the optimism from the report was the addition of 23,800 people to the labour force during the month, nudging the unemployment rate up a tick to 6.1%.

The Canadian dollar was up 0.0114 to 0.9944 against the U.S. dollar (1.0057 USD/CAD) and up 0.4000 to 102.4000 against the yen. The euro was down 0.0089 to 1.5568 and the pound sterling down 0.0242 to 1.9633, both against the Canadian dollar.

The major story of the day - and the week - was the climb in oil prices. Nymex crude was up $2.47 to $126.16 a barrel. It earlier hit a record $126.25 -- the fifth consecutive record-breaking day. On the week, Nymex crude was up 8.4%, the biggest weekly gain since June 2005.

"Everybody is grasping for where the market is heading," said Esa Ramasamy, executive editor at Platts.

Ramasamy said there may be a short-term correction in oil prices but he sees very little that could immediately dent prices.

"The only thing that can happen is that demand must fall very rapidly and inventory levels must rise rapidly. We would need a string of bearish data," he said.

Sung Yoo, oil analyst at JPMorgan, said indexed funds and people looking for alternative investments are responsible for about $30 of the price of oil.

"It's not moving on fundamentals, global inventories are comfortable," he said. "At some point there will be a sizable correction."

Other commodity markets were also higher but not to the same extent as crude oil. The front month gold contract at the Chicago Board of Trade is up $4.60 to $886.50 per ounce and the 19-commodity CRB index was up 5.34 to 427.48. On the week, the index was up 4.7%.

The strength in commodities is expected to squeeze the U.S. consumer. That, combined with poor quarterly results at AIG and a plan to sell assets at Citigroup, led to a down day in equity markets.

Toronto's S&P/TSX composite index closed down 74 points to 14534, the Dow Jones industrial average down 120 points to 12747, the S&P 500 down 9 points to 1388 and the Nasdaq down 6 points to 2446.

In what was a choppy, indecisive week in the stock market, the S&P 500 was down 1.7% while the S&P/TSX composite index was up 1.4%.

European stock markets closed in negative territory with the Eurostoxx down 47 points to 3228, the UK FTSE 100 down 66 points to 6205 and the German DAX down 69 points to 7003.

Economic data was of the second-tier variety. Canada's merchandise trade surplus came in $1 billion above expectations in March, soaring to $5.5 billion, mainly on the strength of high energy prices. The U.S. monthly trade deficit narrowed to $58.21 billion. Economists had been expecting a deficit of $61.4 billion.

Treasuries had little reaction to the news, but the Canadian and U.S. dollars rose slightly against the euro, yen and pound sterling.

Government bond strategists at RBS Greenwich Capital said the week gave little indication of the direction the U.S. economy is heading and said the upcoming week is like to be the same.

"Either you believe the economy will continue to weaken or it's stabilizing. Either you concur that there will be another leg to the credit stress or risk tolerance is improving. We don't think the week ahead will provide definitive answers, and so we think consolidation, and acceptance, of the post Refunding turn will be the story of the week," wrote strategists David Ader and Ian Lyngen in a note to clients.

Yields on two-year Canadian government bonds are down 3.2 bps to 2.74%, with five-year yields down 5.4 bps to 3.15%, 10-year yields down 5.6 bps to 3.59% and 30-year yields down 5.1 bps to 4.09%. The Canadian 10-year note is yielding 18.12 bps less than the U.S. 10-year note.

U.S. two-year yields are up 2.5 bps to 2.24%, with five-year yields flat at 2.97%, 10-year yields down 0.6 bps to 3.77% and 30-year yields down 1.6 bps to 4.53%. The Eurodollar September 08 contract is down 4.5 ticks to 97.36. The 10/2 year spread flattened 2.55 bps to 152.57. The yield curve is flatter, with the 10/2-year spread down 2.5 bps to 152.57 bps.

In Germany, returns on two-year German bonds are down 4.5 bps to 3.70%, with five-year yields down 5.5 bps to 3.75%, 10-year yields down 6.9 bps to 4.00% and 30-year yields down 5.1 bps to 4.50%.

Yields on UK two-year bonds are down 2.4 bps to 4.30%, with five-year yields down 2.4 bps to 4.27%, 10-year yields down 3.6 bps to 4.58% and 30-year yields down 2.1 bps to 4.46%.

The U.S. dollar was down 0.7700 to 102.9750 against the yen and the Dollar Index is down 0.438 to 73.039.

The euro is up 0.0087 to 1.5481 against the U.S. dollar, up 0.0052 to 0.7930 against the pound sterling and is lower by 0.26 to 159.41 against the yen.

The pound sterling is down 0.0020 to 1.9523 against the U.S. dollar.

All data taken at 4:28 p.m. EDT.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, This email address is being protected from spam bots, you need Javascript enabled to view it