By Kaori Kaneko TOKYO (Reuters) - The dollar rose against the euro on Friday as investors covered their short positions, but its gains were limited before a U.S. employment report that is expected to show the worst job losses in more than two decades. The dollar had fallen on Thursday amid expectations that the European Central Bank's aggressive rate cut would help shore up the euro zone economy and stave off a deep recession. Dismal U.S. jobs data is likely to encourage the Federal Reserve to cut rates to just 0.5 percent this month. The U.S. economy is forecast to have lost 340,000 jobs in November, which would be the worst monthly job loss since 1982, according to economists polled by Reuters. "A deterioration in the labor market will affect private consumption, which would dampen economic sentiment," said Satoru Ogasawara, macro strategist at Credit Suisse. "The dollar is likely to appreciate against higher-yielding currencies on investors' increasing risk-aversion but is expected to be weighed down against the yen," he said. The euro fell 0.1 percent to $1.2766 from late New York trade on Thursday. The European single currency rose 0.2 percent to 118.10 yen. The dollar climbed 0.3 percent to 92.51 yen, after hitting its lowest point in five weeks at 92.05 yen on electronic trading platform EBS in U.S. trading. The market is also cautious due to uncertainty over the fate of troubled U.S. automakers and their attempts to secure government aid. General Motors Corp, Ford Motor Co and Chrysler LLC submitted plans to Congress earlier this week to show that they can still be viable businesses. The White House said on Thursday it is too early to judge the restructuring plans put forward by the automakers, adding that the administration wanted to hear their testimony to Congress first. "The dollar's gains will likely be limited before the U.S. jobs data and the U.S. automakers' testimony. But investors are likely to grow increasingly risk-averse and the dollar may move closer to 90 yen next week," said Kwang-ja Kim, deputy general manager at Shinsei Bank. The ECB made its biggest ever cut in interest rates on Thursday, lowering benchmark credit costs by 75 basis points to 2.50 percent as it forecast a grim year for the recession-bound euro zone economy. The Bank of England also slashed rates to their lowest level since 1951 and indicated more needed to be done to prevent a credit squeeze tipping Britain's economy into a prolonged recession. The yen and dollar were likely to hold their strength against European currencies as rate cuts erode the advantage of higher-yielding currencies, said Yousuke Hosokawa, treasury department senior manager at Chuo Mitsui Trust and Banking. (Reporting by Kaori Kaneko; editing by Sophie Hardach)

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