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]