* Dollar, yen remain well-bid as recession worries linger
* U.S. payrolls data show steepest fall in 34 years
* Markets fully price another half-point U.S. rate cut
* For up-to-the-minute market news, click on FXNEWS (Updates prices, adds quotes)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 5 (Reuters) - The dollar climbed against European currencies while the yen rallied on Friday as economic worries worldwide deepened after a report showing the steepest monthly fall in U.S. jobs since 1974.
The yen had rallied to six-week highs against the dollar immediately following the U.S. non-farm payrolls report, reviving speculation the Bank of Japan, also battling a recession, may intervene in the market to temper the Japanese currency's strength, which has hurt the country's exports.
"Falling equity and commodity prices are adding to risk aversion, thereby benefiting the dollar and yen," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York. "Deteriorating economic fundamentals in the U.S. and overseas are adding to risk aversion, also benefiting the dollar and yen."
The employment data for November underscored the depth of the downturn in the world's largest economy, with news of a surprising fall in German manufacturing orders in October and Canada's sharp job losses last month also heightening the gloom around the world.
As the global economy worsens, analysts said investors will continue to snap up the U.S. dollar and yen as they pare back their their holdings of risky trades financed by both currencies' cheap rates.
The dollar will also benefit from continued repatriation by U.S. fund managers liquidating their overseas investments, spooked by financial and economic concerns.
In midday New York trading, the euro
RISKS FOR DOLLAR/YEN
The dollar fell as low as 91.60 yen
The greenback had fallen to a 13-year low below 91 yen in October and that could be at risk if market sentiment deteriorates. Should the dollar fall below 90 yen, analysts say, that could raise the BoJ's alarm signals, prompting it to intervene in the market and weaken its currency.
The euro dropped 0.9 percent to 116.71 yen
Data on Friday showed U.S. employers cut payrolls by a shocking 533,000 in November, the sharpest monthly loss since 1974, as recession in the world's largest economy deepened. Markets were expecting job losses of 340,000, according to Reuters data. For report, click on [ID:nN05444819].
All told, the U.S. economy has now shed 1.9 million positions since the beginning of the year.
The unemployment rate likewise rose to 6.7 percent, the highest since 1993.
"Just when you thought that the U.S. economic outlook couldn't get any uglier, it goes ahead and does," said Meny Grauman, an economist at CIBC World Markets in Toronto.
"Not only have we seen a steady stream of job losses since the beginning of the year, but we are now seeing the type of sustained triple-digit monthly job losses that have accompanied some of the deepest U.S. recessions."
The gloomy jobs data further bolstered expectations of another interest rate cut by the Federal Reserve.
Interest rate futures now fully price a 50-basis-point Fed rate cut on Dec. 16, which would take the federal funds rate to 0.50 percent. The implied prospects for a cut to 0.25 percent jumped to 76 percent from 64 percent late on Thursday.
European central banks slashed interest rates on Thursday in efforts to stimulate their flagging economies, but market participants believe rates of major countries around the world have more room to fall. (Editing by Dan Grebler)
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