By Richard Hubbard

LONDON, Dec 7 (Reuters) - The darkening outlook for the

European economy sent the euro to a nine-day low against the

dollar on Friday and ended a week-long rally in the region's

share markets.

But the moves were limited by the approaching jobs report

from the United States, due at 1330 GMT, which could fuel

expectations that the Federal Reserve will announce a fresh

round of monetary policy easing next week.

The yen also briefly rose when a powerful earthquake struck

north-eastern Japan, triggering a tsunami warning. A strong

earthquake in March 2011 had led to a sharp rise in the yen on

expectations that Japanese investors will repatriate funds held

abroad back home.

The euro was down 0.3 percent at $1.2927, extending

its retreat from a seven-week peak of $1.3127 hit on Wednesday,

on heightened talk that the weakening economic outlook will

prompt an early rate cut by the European Central Bank.

The gloom surrounding euro zone deepened on Friday when

Germany's central bank cut its growth outlook and pointed to

risks of a recession as the three-year old debt crisis takes its

toll on the region's largest economy.

The bleak warning came just a day after the ECB slashed its

own economic forecasts for the entire 17-nation euro area next

year, while leaving its main interest rate at a record low 0.75

percent for the fifth month running.

'The discussion on interest rates is what started the slide

in the euro in the last 24 hours and the Bundesbank report has

just compounded that,' said Neil Mellor, currency strategist at

Bank of New York Mellon.

CLOUDS DARKEN

The shift in focus back to Europe's problems and away from

the outlook for China and the U.S., were hopes had been growing

of gradual strengthening in economic activity, brought a rally

in European shares to a close.

The FTSEurofirst 300 index of top European shares,

which hit an 18-month peak on Thursday, was virtually unchanged

at 1,130 points while Germany's Dax, London's FTSE 100 , and Paris's CAC-40 were all little changed.

'You cannot stand in the way of the numbers, which tell us

Europe will be in a recession next year and earnings will be

poor,' Justin Haque, a broker at Hobart Capital Markets, said.

The bad news extended to the British economy as well with

manufacturing output falling in October at the fastest pace

since June and well below most economists forecasts.

Analysts said the data pointed to further contraction in the

economy as a whole in the fourth quarter.

A slight dip in U.S. stock futures hinted at a cautious Wall

Street open, although much hangs on the nonfarm payrolls data.

Analysts expect the U.S. economy added about 93,000 extra

jobs in November, against October's gain of 171,000 as

superstorm Sandy took its toll on the figures. The unemployment

rate is seen holding steady at 7.9 percent.

A weak payrolls number, with a higher unemployment rate,

would increase expectations that Federal Reserve policymakers

would opt to further ease policy at its next meeting scheduled

for Dec 11-12.

Many economists think the U.S. central bank will announce

monthly bond purchases of $45 billion after the meeting, and

signal it will continue to pump money into the U.S. economy

during 2013 in a bid to bring down unemployment.

The concern about economic weakness in Europe and the U.S

kept oil prices on course for their biggest weekly decline in a

month, though expectations of a recovery in China limited the

moves.

'The big picture is that Europe is weak, (the) U.S. is

undecided and China is strong, so the news flow from these three

will be what determines prices,' said Jonathan Barratt, chief

executive officer at research firm Barratt's Bulletin.

Brent crude added 33 cents to $107.36, while U.S.

crude futures inched up 15 cents to $86.41.

Gold prices eased back below $1,700 an ounce but again but

trading was cautious ahead of a U.S. employment report.

(Additional reporting by Anooja Debnath and David Brett,

editing by Philippa Fletcher)

((richard.hubbard@thomsonreuters.com)(Tel +44 207 5423215))

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