* Yen rebounds vs dollar, euro after Japan data
* Japan industrial output dive matches forecasts
* Speculators cash in gains on dollar's recent rise
By Rika Otsuka
TOKYO, Feb 27 (Reuters) - The yen rose on Friday from a 3-1/2-month low against the dollar as Japanese output data, although it showed the worst fall on record, matched economists' expectations and led speculators to take profits on the dollar's rise versus the yen in the last two weeks.
The euro eased against the dollar as fears of a global recession prompted investors to further cut risky bets after dismal U.S. data released on Thursday.
The U.S. currency has benefited recently from a flight-to-safety bid due to worries about the outlook for the global economy.
Japanese government data showed on Friday that industrial production plunged 10.0 percent in January from the previous month, posted its biggest drop on record. But the fall exactly matched a median market forecast.
"Yen selling in the past two weeks due to concerns over the fast-deteriorating Japanese economy might be nearing its end," said Hideki Hayashi, chief economist at Shinko Securities.
But analysts said Friday's output report and data showing Japan's core annual consumer inflation slowed to zero in January confirmed the view that the world's second-biggest economy is mired in its worst slump since World War Two.
The yen rose 0.7 percent from the previous day's U.S. trade to 97.85 to the dollar.
The U.S. currency rose as high as 98.72 yen on trading platform EBS on Thursday, its highest since mid-November, as investors who had bet the Japanese unit would strengthen unwound long yen positions.
The euro dropped 1.0 percent against the Japanese currency to 124.25, falling from a seven-week peak of 126.09 yen struck on EBS the previous day.
The European single currency was down 0.4 percent at $1.2700.
U.S. government data showed on Thursday that sales of newly built single-family homes slumped to the lowest since at least 1963 in January, while prices fell to the weakest level in five years, highlighting the continued distress in the U.S. housing market.
Other reports showed U.S. durable goods fell for a sixth consecutive month to a six-year low in January, while the number of U.S. workers claiming jobless benefits notched a fresh record in the second week of February, with new claims at the highest level since 1982. (Reporting by Rika Otsuka; Editing by Hugh Lawson)