* US July payrolls fall more than expected
* Dollar hits 8-month low vs yen, nears 15-year trough
* Euro hits three-month peak above $1.33
* Markets worry weak U.S. growth could spark Fed action (Updates prices)
By Vivianne Rodrigues
NEW YORK, Aug 6 (Reuters) - The U.S. dollar approached a 15-year low against the yen on Friday and fell against the euro after news that the United States' economy shed twice as many jobs in July as expected added to worries about the recovery.
Analysts said the weak jobs report, combined with a recent string of poor data may lead the Federal Reserve to renew Treasury and mortgage bond purchases to jolt the economy. That would drag U.S. Treasury benchmark yields even lower and further dampen returns in dollar-denominated assets.
"It's just not safe to hold dollars. Quantitative easing is back on the table and it will push yields even lower," said Douglas Borthwick, head trader at Faros Trading LLC, in Stamford, Connecticut. "There are very few reasons out there to buy it."
While U.S. employers did add 71,000 private-sector jobs in July, that was below forecasts for a gain of 90,000, helping to push the euro EUR= to a three-month high above $1.33. Total non-farm payrolls fell as temporary government jobs to conduct the census dropped.
The dollar fell as low as 85.03 yen JPY= -- its lowest level since November and near a 15-year trough beneath 85.
Sterling hit a six-month high near $1.60 GBP=D4. For more on the data, please see [ID:nN05598486]
The jobs report "is really going to deepen concerns about the health of the labor market, and that increases the odds of the Federal Reserve having to implement fresh stimulus measures to jump-start the recovery," said Joe Manimbo, analyst at Travelex Global Business Payments in Washington.
The data also drove U.S. 2-year Treasury note US2YT=RR yields to the latest in a string of record lows, further undermining the dollar's appeal.
Analysts also said things do not look likely to get better for the greenback ahead of the Fed's next policy meeting on Tuesday.
William Reekstin, a director with Direct Access Partners, in New York, said the dollar is in a consolidation mode against its counterparts and that the euro will find resistance to further gains at $1.3416.
WATCHING THE YEN
The dollar last traded down 0.5 percent at 85.43 yen, still above a 15-year low of 84.81 yen and its all-time trough below 80 yen, according to Reuters data.
Support around 85 yen has held despite a number of assaults on that psychological level.
Boris Schlossberg, director of research at GFT Forex in New York, said the dollar will eventually break that level, "if not today, then early next week, as currency traders price in declining yields in the U.S. bond market."
A dip below 85 yen could increase volatility and push Japanese officials to try to talk down the yen.
Several lawmakers have warned that action may be warranted to weaken the yen and restore Japan's trade competitiveness, though analysts think it would take an extremely rapid rise to trigger an outright intervention.
EURO, STERLING RISE
The euro was last up 0.7 percent at $1.3281 after earlier hitting $1.3333 -- its highest level since May.
A weekly close above $1.3125, the 38.2 percent retracement of the euro's November-to-June slide, looks likely and, strategists said, would be a bullish sign pointing to more euro gains.
Sterling GBP=D4 rose 0.5 percent to $1.5961, its best showing against the greenback since February. Traders said that $1.5910 was now seen as support should the pound retreat.
The dollar rose against its Canadian counterpart CAD=D4 after data showed Canada's economy shed 9,300 jobs in July, compared with forecasts for a gain of 15,000. [ID:nSCL6JE64E]