NEW YORK (Reuters) - The US dollar climbed to five-week peaks against the euro and three-week highs against the British pound on Friday as better-than-expected economic data allayed worries about a much sharper slowdown.

The yen, on the other hand, gained broadly, benefiting from heightened stress in financial markets on news that General Motors (GM) had hefty losses in the second quarter. That dragged US stocks lower and triggered safe-haven bids for Treasuries.

"US dollar sentiment has certainly changed for the better over the last couple of weeks," said Mark Frey, head foreign exchange trader at Custom House, a global payments dealer in Victoria, British Columbia.

"The US economy has gone through some tough phases, but the jobs number was negative, but still better than expected. I think, more importantly, recent consumer confidence numbers and leading indicators, which are more forward-looking, have been more positive," he added.

Friday's data showed that US employers eliminated 51,000 jobs in July, lower than market expectations for a payrolls decline of 75,000. A separate report said US factory activity was unchanged in July, compared with the previous month, but above market forecasts.

In late New York trading, the euro was down 0.4 percent at $1.5538 . It dropped to $1.5514 immediately after the US jobs data, its lowest since June 24, according to Reuters data.

The ICE Futures US dollar index rose as high as 73.527 , building on July's gains, which saw it post its biggest monthly gain since January 2007.

The index, which measures the dollar's performance against a basket of six currencies, was last up 0.4 percent at 73.461.

Sterling, meanwhile, fell to three-week lows at $1.9729 . It last traded at $1.9732, down half a percent from late on Thursday.

Following the latest US data, investors widely expect the Fed's policy-making Federal Open Market Committee (FOMC) to keep its benchmark federal funds rate steady at two percent when it meets tomorrow.

The implied chances for rate increases rise steadily from there to 36 percent in September and 66 percent in October, but the first 25 basis-point-hike is not fully priced until the January FOMC meeting.

Rising risk aversion amid a drop in US and key European stock markets dragged the dollar lower against the yen.

Shares of GM plunged more than seven percent after the top US car maker posted a second-quarter loss of $15.5 billion, or $6.3 billion excluding one-time items, much worse than forecast.

A rise in crude oil prices also hurt the dollar against the yen.

US crude oil rose $1.02 to settle at $125.10 a barrel as geopolitical concerns fanned supply worries after a top Israeli official said Iran was heading toward a major breakthrough in its nuclear programme.

The dollar last traded down 0.1 percent at 107.73 yen. Against the euro, the yen rose 0.5 percent, pushing the single currency to 167.37.

The Australian dollar tumbled to a two-and-a-half month low at $0.9289, as speculation mounted that the Reserve Bank of Australia could set the tone for lower interest rates after its policy meeting next week.

The New Zealand dollar also slumped to $0.7247, a 10-month low, on deepening concerns over the local financial sector. It was last at $0.7267, down 0.9 percent on the day.

By contrast, prospects for the US dollar have started to improve since early last month as evidence mounted that America's credit and housing woes were spreading to other parts of the world such as the euro zone and Britain.

News out of the US has been less dire than expected and falling oil prices have eased worries about the world's largest economy.

"The US has taken further steps to ease the problems plaguing the housing market. Relatively speaking, the downward movement in Europe is now clearly more pronounced and the downshift has only just started," Danske Bank said in a research note.