FOREX-US dollar, yen rise as weak data erodes risk appetite

* Dollar, yen extend gains as weak PMIs knock share markets

* High-yielders sink on expectations of global rate cuts

* BoE, ECB, RBA, RBNZ all seen slashing borrowing costs (Updates prices, adds comments)

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 1 (Reuters) - The dollar and yen rallied on Monday as sharp declines in U.S., European and Chinese manufacturing activity unnerved investors and pushed world stock markets lower.

THe U.S. and Japanese currencies have rallied over the last few months as investors reversed risky trades funded by cheap yen and dollar borrowings. Investors have also sought dollars as they pinned their hopes on a substantial economic stimulus package from the incoming administration under President-elect Barack Obama.

The yen performed best against currencies of countries where central banks are expected to slash interest rates later this week, including the euro, sterling, and Australian dollar.

"The dollar is still trading off bad economic news, risk aversion, and repatriation flows," said Michael Woolfolk, senior currency strategist, at Bank of New York Mellon in New York.

"The respite we saw in dollar buying late last week has faded. The Dow is down, crude oil is down $3-$4 a barrel, so we're seeing very familiar trends in financial markets."  Continued...