The dollar edged up from a six-week low against the yen on Monday as Japanese investors stepped in to buy after its slide late last week on poor US jobs data that bolstered expectations for an aggressive Fed rate cut.

The dollar also staged a slight rebound in Asia trade after some traders were disappointed the weak payrolls report did not spark a deeper retreat in the US currency, prompting them to reverse short positions.

The yen slipped even as Asian stock markets extended their slide on worries about the US economic outlook, partly from Japanese importers buying dollars for their commodity needs and from Japanese investors seeking higher yields, traders said.

Yet traders said a further sell-off in stock markets would likely spur more unwinding of carry trades in which the low-yielding yen is used as a cheap source of funds to buy higher-yielding currencies and riskier assets like equities.

"The market is still adjusting its view of how a US slowdown is going to affect Asia," said Gerrard Katz, head of North Asia currency trading at Standard Chartered in Hong Kong.

"As long as Asian stocks are weak, fund managers are buying US Treasuries and selling positions in a traditional safe-haven play."

The dollar edged up 0.3 per cent from US Friday trade to 108.90 yen clawing up from a six-week low of 107.90 yen struck on Friday.

The euro dipped 0.1 per cent to $1.4728 after reaching a five-week high of $1.4825 on Friday, not far from the record peak of $1.4968 struck in November.

The single European currency gained 0.2 percent to 160.35 yen but was also near a six-week trough struck last week.

On Monday, Japan's Nikkei average was down 1.1 percent following a 4 per cent tumble on Friday. Equity markets in Taiwan and Hong Kong shed around 3 per cent.

The US payrolls report showed an employment rise of just 18,000 in December and the jobless rate posting a surprisingly big surge to a two-year high of 5 per cent, stoking fears the economy is headed for a recession.

Market players believe the Fed is likely to cut rates by a hefty half-point at its late January meeting to 3.75 per cent, which is usually seen as potentially eroding the attractiveness of US assets to some foreign investors.

A quarter-point rate cut is seen as virtually certain. Currency strategists at RBC Capital Markets said the jobs data stirred doubts that "US consumers will be able to withstand the onslaught of tighter credit markets, a declining housing market and looming subprime mortgage refinancing."

Analysts are divided about whether the dollar will extend last year's sell-off to record lows against the euro in 2008 as the economy worsens, or whether the Fed's sharp rate cuts will help improve confidence on the US economy's outlook.

Other central banks in Canada and Britain have followed the Fed in cutting interest rates.

Sterling edged down to $1.9702 from around $1.9735, weighed down by persistent expectations that UK interest rates are set to fall significantly from 5.5 per cent in 2008.

On Friday, sterling fell as low as $1.9674, the lowest since mid-August. A Reuters survey showed late last week that many economists expect the Bank of England will leave interest rates on hold at its two-day meeting ending on Thursday, although they say rates will fall three times this year to 4.75 percent.

The European Central Bank, which has kept saying that it is worried about inflationary pressures, will also hold a policy meeting later this week. -Reuters