FOREX-Yen rises to seven-week high on safe-haven demand

* Yen rises broadly, hits 7-week high vs dollar

* Risk aversion continues on uncertainty about economy

* US private sector sheds 298,000 jobs in August (Adds comment, details, updates prices)

By Wanfeng Zhou

NEW YORK, Sept 2 (Reuters) - The yen rose broadly on Wednesday, hitting a seven-week high versus the dollar, as a worse-than-expected U.S. private-sector jobs report boosted the appeal of the Japanese currency as a safe haven.

The yen also jumped to seven-week highs versus the euro and sterling as the data, which came two days ahead of the government's August unemployment report, added to uncertainty about the U.S. labor market and continued risk aversion.

"The outlook for non-farm payrolls is not clear. There's hesitancy in the currency market and it's being reflected in equities as well," said Kathy Lien, director of currency research at GFT Forex in New York.

Private employers cut 298,000 jobs in August, according to the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC. Economists had expected job losses of 250,000, although the number was fewer than a revised 360,000 jobs lost in July. .

In midday New York trading, the dollar fell 0.5 percent to 92.41 yen after hitting a low of 92.23 yen, according to Reuters data, its lowest since mid-July.

The euro was last down 0.3 percent at 131.62 yen , while sterling was down 0.1 percent at 149.90 yen

U.S. stocks mostly hovered around breakeven during the morning session, with the S&P 500 index <.SPX> up 0.8 percent at midday. The currency market has been taking cues from equity prices in recent days.

"There's a very strong correlation between any move in the currency market and the equity market," said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York.

"It seems that in the last couple of days, despite good economic data coming out of the U.S., the stock market has sort of disappointed and hasn't really moved in any positive way. So currencies are clearly reacting to that."

ECB, PAYROLLS

Against the dollar, the euro recouped earlier losses and last traded up 0.2 percent at $1.4246 as U.S. stocks came off earlier lows. It touched $1.4175 on Tuesday, the lowest level since Aug. 19.

The European Central Bank is widely expected to keep interest rates at 1.0 percent on Thursday, with ECB President Jean-Claude Trichet likely to caution against growing talk of a full-blown euro zone economic recovery.

On Friday, the U.S. government will release the non-farm payrolls report for August, which includes public and private sector jobs. Economists polled by Reuters expect job losses of 225,000 for August.

Some traders said yen gains were being driven by short-term speculators building long yen positions ahead of the Labor Department report. A weak reading may drive the dollar/yen down to the 90 yen mark, they said.

"The trend is improving, but the bottom line, though, is that the U.S. economy is still bleeding jobs, and as result we're seeing selling in risk trades in the currency market," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

In other trading, the Australian dollar rose 0.7 percent to $0.8321 after data showed Australia's economy grew at its fastest pace in more than a year last quarter, supporting the case for an early rise in interest rates. [ID:nSYD536295]. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Kenneth Barry)