GLOBAL MARKETS-Bonds, Swiss franc jump on recession worries

* Safe-haven demand boosts Treasuries, Swiss franc

* U.S. stocks fluctuate after jobless claims, factory data

* Crude oil up, erasing early loss

* Coming up: U.S. non-farm payrolls on Friday (Recasts with safe-havens rally; adds Goldman jobs' forecast)

By Barani Krishnan

NEW YORK, Sept 1 (Reuters) - Faltering factory activity around the world sparked a rally in safe-haven investments like U.S. Treasuries and the Swiss franc on Thursday as investors became more worried about the global economy falling into recession.

Stocks on Wall Street were flat until early afternoon after a reading on U.S. factory activity in August avoided the contraction most had expected, though it was hardly robust. But they subsequently turned lower, with investors mostly biding their time ahead of Friday's U.S. jobs data for August. [.N]

Economists at Goldman Sachs, in a note to clients, said they cut their forecast for the gain in nonfarm payrolls to 25,000 from 50,000. [ID:nN1E7800UL]

The euro took a beating by the Swiss franc and the dollar as euro zone manufacturing appeared in a particularly poor state, contracting for the first time in almost two years.

Given the weak state of the global economy, particularly the slowdown in the United States, investors are likely to raise bets on more action by the Federal Reserve when economic data is poor.

"Economic data are still telling you that things are not improving in the economy," said Lee Cohen, head of government trading at Oppenheimer and Co. in New York.

"The markets always want candy from the Fed," he added.

Bonds jumped, with prices on benchmark 10-year U.S. Treasury notes up 22/32, with a yield of 2.15 percent.

The 30-year bond was up 1-22/32 for a yield of 3.51 percent.

Among currencies, the Swiss franc surged against the euro. The euro fell to 1.13201 Swiss francs on trading platform EBS and was last down 2.1 percent at 1.13370 francs.

At 1:45 p.m. EDT (1745 GMT), Wall Street's Dow Jones industrial average <.DJI> was down 64.52 points, or 0.56 percent, at 11,549.01. The Standard & Poor's 500 Index <.SPX> was down 8.49 points, or 0.70 percent, at 1,210.40. The Nasdaq Composite Index <.IXIC> was down 22.43 points, or 0.87 percent, at 2,557.03.

Stocks on other world exchanges, including those in Europe, rebounded, mostly recovering early losses.

European stocks were helped by gains in defensive sectors such as telecommunications and pharmaceuticals, which eclipsed losses in cyclical shares. Peripheral banking shares took a hit though. The FTSEurofirst 300 index <.FTEU3>, rose 0.7 percent, after dropping as much as half a percent earlier.

Global stocks, measured by the MSCI All World Index <.MIWD00000PUS>, lost 0.2 percent.

The euro extended its losses against the dollar. The single currency fell to a low of $1.42267 on EBS , off a New York session peak of $1.43853 after the ISM data. It was last at $1.42775.

The dollar's strength could be short-lived if investors continue betting on another dose of Fed monetary injection to help jobs growth.

"At the end of the day, this does not remove the need for more stimulus from the Fed. The key is still job growth," said Kathy Lien, director of research at GFT Forex in New York.

The Fed is expected to focus on Friday's non-farm payrolls data for August to determine its next course of action.

U.S. crude oil was rose 1 percent, trading at just below $90 per barrel, after slipping to as low as $88.21 earlier. [O/R] (Additional reporting by Richard Leong in New York and Jeremy Gaunt in London; editing by Dan Grebler)