FOREX-US dollar falters; hurt by Wal-Mart, jobless claims

* Dollar falls vs yen as risk aversion returns

* U.S. weekly jobless claims, Wal-Mart sales hurt dollar

* Sterling bounces as BoE delivers 50 bps rate cut (Adds quotes, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 8 (Reuters) - The U.S. dollar weakened against the yen on Thursday, as falling stocks worldwide and weak sales at top U.S. retailer Wal-Mart tempered the market's appetite for risk and reignited worries about the global economic outlook.

The greenback also fell against the euro after the latest weekly data showed the number of Americans on unemployment benefits rose to a 26-year high.

"The dollar is looking vulnerable with all the bad economic numbers we're seeing such as rising unemployment," said Shaun Osborne, chief currency strategist, at TD Securities in Toronto.

"We have U.S. payrolls (Friday) and some are saying we could get a shocker. Some people are talking about 1 million job losses for December," he said.

The dollar had rallied in the first few days of 2009, buoyed by a U.S. stimulus package that many hope would help pull the economy out of recession. But that optimism proved short-lived as fresh U.S. data, including the steep drop in private sector jobs, showed that this could be a prolonged slowdown.

Following Wednesday's grim ADP Employer Service report, which showed job cuts of 693,000, a revised Reuters poll indicated that analysts have revised their forecasts for U.S. non-farm payrolls in December to show job losses of 550,000, from an original estimate of 500,000.

In midday New York trading, the dollar was down 1.8 percent at 91.01 yen JPY=, extending losses after Wal-Mart Stores Inc (WMT.N) -- the world's largest retailer -- posted weaker-than-expected December sales.

It also forecast lower earnings in the fourth quarter, adding that the holiday season was more challenging than expected for retailers. For details, see [ID:nL8478360]

"The Wal-Mart news is negative for the overall economy and certainly a negative for stocks and this has short-circuited the dollar's New Year rally," said Brian Dolan, chief currency strategist, at Forex.com in Bedminster, New Jersey.

The euro traded 0.7 percent higher at $1.3731 EUR= after sliding to a session low of $1.3535 earlier, according to Reuters data.

The strong yen pushed the euro down 1.0 percent to 125.01 yen EURJPY=.

A speech by President-elect Barack Obama on Thursday, outlining some measures to ease the pain for the ailing U.S. economy had little impact on the dollar. [ID:nN08508944]

Sterling, meanwhile, bounced to three-week highs versus the dollar and euro after the Bank of England met market expectations with a 50-basis-point interest rate cut to 1.5 percent.

Analysts said the BoE statement, which expressed concern about the weak pound's impact on the economy's imports, suggested that the central bank may have to slow the pace of its rate cuts

The pound rose as high as $1.5372 GBP=, according to Reuters data. It last traded at $1.5190, up 0.5 percent on the day. The euro recovered against the pound, supported by the single currency's gains versus the dollar, rising 0.3 percent to 90.47 pence. The euro earlier hit a low of 88.81 pence EURGBP=D4, its lowest since mid-December.

"Most traders anticipated the 50-basis-point cut and were relieved to see the BoE simply match expectations instead if easing more aggressively," said Boris Schlossberg, director of currency research at GFT in New York.

"Only a few weeks ago the consensus market call was for a full 100 basis point cut, so given today's more modest response the news can be viewed as victory for pound bulls."

Earlier in the session, the euro was weighed down after figures showing an unprecedented 10.6 percent month-on-month fall in German exports in November. [ID:nL88871]

A series of weak euro zone economic data further fueled the view that the the region's recession is deepening, which may require aggressive rate cuts by the European Central Bank. (Additional reporting by Steven C. Johnson in New York and Veronica Brown in London; editing by Gary Crosse)