* Dollar hits 13-year low of 88.10 yen
* U.S. Senate fails to reach compromise on auto rescue deal
* Stocks dive on auto bailout failure, investors flee to yen
* Prospects of intervention stall yen advance, for now
By Shinichi Saoshiro
TOKYO, Dec 12 (Reuters) - The dollar tumbled to a 13-year low against the yen on Friday, slicing below the symbolic 90 yen threshold, as the U.S. Senate failed to agree on a bailout for troubled U.S. auto makers and triggered an exodus to the perceived safety of the Japanese currency.
The tumble by the dollar raised the prospect of intervention by Japan to prevent a further appreciation of the yen, putting a floor under the U.S. currency for the time being.
Risk aversion has supported the yen over the past several weeks and surged as Asian stock markets dived in response to the U.S. auto rescue plan failure.
Tokyo's Nikkei share average shed more than 5 percent. The MSCI index of Asia-Pacific stocks outside Japan also retreated more than 5 percent.
The dollar had hit a seven-week low against the yen and euro the previous day, after data suggested a further rise in unemployment in the world's largest economy.
On Friday, news that a congressional rescue for U.S. auto makers was now effectively out of the picture for this year sent the greenback down sharply versus the yen.
The dollar dropped as low as 88.10 yen on trading platform EBS, a level untouched since August 1995.
The dollar later pulled back to 89.61 yen, down 2.3 percent from late U.S. trade on Thursday.
"It was a knee jerk reaction, where the dollar was dumped hastily as prospects for the Big Three automakers crumbled," said Takahide Nagasaki, chief forex strategist at Daiwa Securities SMBC.
"The last few sessions were about the dollar weakening against other major currencies, but now the yen is being bought on flight to safety," Nagasaki said.
The euro declined 2.8 percent to 118.97 yen
The Australian dollar, seen as a gauge for risk appetite, fell 4.7 percent to 58.68 yen.
INTERVENTION EYED
The yen pulled back from 13-year highs struck against the dollar as market participants grew wary of Japanese currency authorities intervening to stem the yen's advance.
"The market was in near chaos as everyone jumped in to sell the dollar, but caution towards intervention eventually slowed the selling," a dealer at a Japanese brokerage said.
"Participants are now watching how the authorities will act, whether by verbal or actual intervention. The authorities appear to have been caught off guard, not having expected the U.S. bailout to collapse," the dealer said.
Market participants said they are looking towards U.S. data due out later in the day. Data includes November producer prices and retail sales.
Discouraging U.S. numbers could test the Japanese currency authority's willingness to step in if the yen gains further against the dollar, analysts said.
Top Japanese financial officials said they were ready to counter "undesirable" currency market swings.
Asked about the possibility of intervention, Naoyuki Shinohara, vice finance minister to international affairs, said: "We will act appropriately depending on the market situation."
Analysts said that if Japan was to intervene, it would likely go alone as the dollar has been relatively firm against other currencies.
The euro dipped 0.6 percent to $1.3280.
(Editing by Sophie Hardach)