* Euro breaks $1.36, hits six-week high versus dollar
* US payrolls data fuel hopes of economic recovery
* US loses 539,000 jobs in April, fewer than expected (Updates prices, adds comment, details, changes byline)
By Wanfeng Zhou
NEW YORK, May 8 (Reuters) - The dollar fell to a six-week low against the euro on Friday after a better-than-expected U.S. jobs report bolstered hopes the global recession may be easing and dented safe-haven demand for the greenback.
The euro broke above $1.36 after government data showed U.S. employers cut 539,000 jobs in April, the fewest since October. While still high, that was not as bleak as financial markets had expected. For full story, see [ID:nL8142930]
The jobless rate hit a 25-year peak of 8.9 percent, tempering some optimism, but a rally in stocks and a bevy of improved global data this week kept risk appetite high.
The dollar tends to suffer when risk sentiment improves as investors feel they no longer need to buy it as a safe haven.
"The economy is still very weak, but ... there's lots of other evidence that the economy is not as bad as it was at the end of last year and the beginning of this year," said Robert Blake, senior currency strategist at State Street Global Markets in Boston. "Now it's more like just a really bad recession instead of a depression or something."
"The repatriation had boosted the dollar during the height of the panic," Blake said, adding now "the safe-haven bid for the dollar is unwinding."
In afternoon trading, the euro <EUR=> last traded up 1.4 percent at $1.3576 after hitting a session peak of $1.3601 -- its highest since March 26, according to Reuters data. The euro-zone currency has gained 2.3 percent this week, en route to its best weekly performance since late March.
The euro was also boosted this week on hopes that the European Central Bank's plan to boost credit through purchases of covered bonds -- which are backed by a pool of assets that remain on a bank's balance sheet -- would help the ailing European economy.
The dollar dipped 0.6 percent to 98.62 yen <JPY=> while sterling rose 0.9 percent to $1.5161 <GBP=>.
Hopes that the world has already endured the worst of the recession have boosted stock markets and risk appetite in recent weeks, putting pressure on the dollar.
It fell to a six-week low against a basket of major currencies with the U.S. Dollar Index .DXY off 1.6 percent at 82.563 and was on track for its third consecutive weekly decline.
"The market is positioning for recovery over the next few months, which means the dollar will clearly see considerable weakness as this plays out," said Melvin Harris, chief market strategist at Advanced Currency Markets in New York.
But analysts warned that the global economy was still mired in recession and faced a number of threats. On Thursday, U.S. regulators said 10 of the country's biggest banks must raise $74.6 billion in equity to shore up their capital cushions. [ID:nN07333426]
"While the economy may be getting worse at a slower rate, it is still in recession and unemployment is rising," Mizuho Corporate Bank currency strategist Nicole Elliott wrote in a note to clients, adding the markets may have to face "the possibility of things not getting significantly worse but not improving much either for a very long time."