GLOBAL MARKETS-Stocks slide, dlr up on euro zone debt crunch

* World equities extend losses after U.S. labor report

* Dollar rallies vs yen on rising risk aversion

* Euro touches lowest against the dollar since May

* Short-dated U.S. Treasuries gain, with yld at 0.76 pct (Recasts lead, update with mid-day US trading, adds quote)

By Herbert Lash and Jennifer Ablan

NEW YORK, Feb 5 (Reuters) - World stock markets slid to three-month lows on Friday as government bonds and the dollar rose as worries intensified over the health of the euro zone's weakest economies.

Adding to the volatility, the latest employment data by the Labor Department on Friday showed a mixed backdrop for the economy. U.S. payrolls unexpectedly fell in January, but the unemployment rate surprisingly dropped to a five-month low.

The euro fell to its lowest level against the U.S. dollar since May over growing investor concern that European nations, including Portugal, Spain and Greece will struggle to control their budget deficits. The cost of insuring the debt of some euro zone countries against default hit record highs because of their fiscal deficits. For details, see [ID:nN05211501]

The dollar was bolstered against both the euro and yen after a report on U.S. payrolls showed American employers cut more jobs in January even as the unemployment rate fell.

The dollar's strength hammered commodity prices, which had fallen sharply on Thursday. Gold and copper slid to three-month lows.

On Wall Street, the Dow Jones Industrial Average <.DJI> traded below the key 10,000 level during early morning and mid-day trade, while the Standard & Poor's 500 <.SPX> and the Nasdaq Composite Index <.IXIC> also were under selling pressure.

The Dow Jones industrial was down 40.05 points, or 0.40 percent, at 9,962.13, while the S&P 500 was down 4.74 points, or 0.45 percent, at 1,058.37. The Nasdaq Composite was down 0.02 points, or 0.00 percent, at 2,125.41.

Meanwhile, gold cut some losses as the mixed labor market picture suggested recovery from the deepest recession since World War Two would remain uneven. [ID:nLDE6140TJ]

The U.S. economy shed 20,000 non-farm payroll jobs in January and the unemployment rate unexpectedly fell to five-month low of 9.7 percent. Analysts had expected a gain in jobs and a slight rise in the jobless rate.

"People are nervous about Spain, Portugal and Greece and that's stealing lots of attention away from everything else, including the employment report, which showed signs of improvement in the labor market," said Tom Sowanick, chief investment officer of the Omnivest Group in Princeton, New Jersey.

The MSCI all-country world index <.MIWD00000PUS> fell 1.74 percent, hitting its lowest since early November. European shares <.FTEU3> fell to two-month lows, following sharp falls in Asia.

The euro broke the $1.3600 level. The single currency has been under pressure all week as widening government bond spreads highlighted concerns over the ability of some euro zone governments to pay their debts. The bond prices of heavily indebted euro zone countries, including Greece, Portugal and Spain, fell sharply.

The concern over sovereign credit has also begun to knock confidence in markets beyond the euro zone.

Stocks in emerging markets have fallen sharply in the past two weeks, with a key index <.MSCIEF> at a three-month low. On Friday the emerging market index was down 3.5 percent to trade at 893.98.

U.S. light sweet crude oil fell $2.34, or 3.2 percent, to $70.80 per barrel, while spot gold prices fell $12.50, or 1.18 percent, to $1050.50. The Reuters/Jefferies CRB Index <.CRB> was down 4.91 points, or 1.86 percent, at 258.76.

U.S. Treasury debt prices were higher.

The benchmark 10-year U.S. Treasury note was up 9/32, with the yield at 3.57 percent, while the 2-year U.S. Treasury note , the maturity most sensitive to moves by the Federal Reserve, was up 3/32, with the yield at 0.76 percent. The 30-year U.S. Treasury bond was up 11/32, with the yield at 4.53 percent. (Reporting by Jennifer Ablan, Richard Leong and Nick Olivari in New York; Christopher Johnson in London; writing by Herbert Lash; Editing by Andrew Hay)