* Yen and Swiss franc rally against other major currencies
* China, EM worries spark selloff in risk assets, global stocks down
* EM currencies savaged, Aussie & loonie also hit hard
SYDNEY, Jan 24 (Reuters) - The yen and Swiss franc held firm early on Friday, having charged higher overnight as worries about a slowdown in China and turmoil in some emerging markets spurred demand for the safe-haven currencies.
The dollar nursed heavy losses after suffering its biggest one-day fall in four months against a basket of major currencies, undermined by a drop in U.S. benchmark yields to a six-week low.
The dollar index was last at 80.438, having skidded nearly 1 percent. It fell more than 1 percent against the yen and Swiss franc, reaching a two-week low of 102.97 yen and a three-week low of 0.8964 francs.
Risk sentiment soured after a survey released on Thursday showed China's vast manufacturing sector kicked off 2014 on a soggy footing. A similar report on the United States showed a slight loss of momentum, but factory activity in Europe beat expectations.
That in part helped explain why the market got bullish on euro/dollar overnight, although it did not fully justify what some traders saw as an outsized move.
This is partly because many still suspect the Federal Reserve will continue to unwind its massive bond-buying stimulus at next week's policy meeting, an outcome that should be dollar positive.
Yet, the euro jumped 1.1 percent to as far as $1.3699 , a near two-week high, before steadying at $1.3694.
"We would be cautious of fading this risk aversion move given the scale of some of the losses in commodity and emerging market currencies, and the euro may stay better supported in the near-term as euro-funded risk positions are covered," analysts at BNP Paribas wrote in a note to clients.
"Looking beyond this immediate period of stress, though, we think the euro remains vulnerable."
Among the wild moves in emerging markets, the Argentinian peso suffered its sharpest fall since 2002 as the country's central bank gave up on defending the currency.
Currencies from Brazil, Venezuela, Turkey, South Africa and Russia all took a beating amid the flight from risk.
Dollar-bloc commodity currencies were also hit hard with the Australian dollar reaching a fresh 3-1/2 year trough of $0.8732 , while the Canadian dollar slid to a 4-1/2 year low of C$1.1174 per dollar.
The New Zealand dollar outperformed its Aussie and Canadian peers, slipping just a touch to $0.8305. Investors were unwilling to sell the kiwi amid speculation the Reserve Bank of New Zealand could hike interest rates as early as next week.
Sterling was another standout performer, continuing its winning ways to reach a near three-year high of $1.6644 . It is supported by growing expectations that robust economic data will lead the Bank of England to raise interest rates sooner than previously flagged.