* Yen, dollar underpinned by worries over global recovery
* European shares hit 7-week low; riskier currencies fall
* July 8-10 G8 meeting eyed for FX diversification debate
* Dlr index at 11-day high; Yen gains 1.3 percent vs euro
(Updates prices; changes byline, dateline; previous TOKYO)
By Jessica Mortimer
LONDON, July 6 (Reuters) - The yen and the dollar gained on Monday as last week's grim U.S. jobs data continued to foster doubts about the prospects for a quick global economic recovery.
Investor confidence has taken a knock since last week's non-farm payrolls report showed the U.S. economy lost far more jobs than expected and currencies expected to benefit first from global recovery, such as the Australian dollar, have fallen.
European shares fell by 1.7 percent to hit a seven-week low , further encouraging investors to shy away from perceived higher risk currencies, preferring the relative safety of the yen and the dollar.
The dollar was also lent support by reassurances from China that the U.S. currency would remain dominant for "many years to come".
Investors were cautious ahead of the G8 meeting on July 8-10, which may provoke further debate on possible central bank reserve diversification.
"People are staying cautious ahead of the G8, where there will be significant focus on the dollar's status as the main reserve currency," UBS currency strategist Geoffrey Yu said.
The U.S. non-manufacturing ISM survey will be watched at 1400 GMT on Monday, while the market is also bracing for the start of the second quarter U.S. corporate earnings season.
The dollar index, which tracks the greenback's performance against a basket of six major currencies, edged up to an 11-day high of around 80.702.
At 0750 GMT, the euro fell to $1.3922, just above an earlier 11-day low of $1.3914, down 0.3 percent on the day.
Most of the dollar's gains came against currencies seen as higher risk, however, with sterling falling more than 1 percent to a one-month low around $1.6134, while the Australian dollar lost 0.8 percent to $0.7902.
YEN GAINS
The yen gained sharply, helped by falling equities, with the euro losing 1.3 percent to a near two-week low around 132.45 yen and the dollar also down 0.8 percent at 95.24 yen.
"Demand for the safer dollar and the yen is returning as investors are wondering whether there are any economies besides China that are strong enough to lead a global recovery," said Jun Kato, senior chief analyst at the Shinkin Central Bank Research Institute in Tokyo.
UBS' Yu also noted that some investors believe the yen may be the best safe-haven play, with the issue of possible reserve diversification away from the dollar likely to be a topic for discussion at the G8.
In comments published on Monday, Chinese officials said the financial crisis had laid bare defects in the dollar-led global economy and the world should look to displace the U.S. currency, even if that will take many years.
Traders in Tokyo said they expected dollar support at 94.88 yen, a low hit on June 23, as the Bank of Japan's latest survey of Japanese companies showed the exchange rate that big manufacturers were using in their plans for the financial year to next March averaged 94.85 yen, lower than 97.18 previously.
A fall in the dollar below 94.85 could further stoke concerns over Japanese exporters' profits overseas, sparking more Tokyo share selling, they said. (Additional reporting by Rika Otsuka in Tokyo, editing by Mike Peacock)