By Joice Alves and Tom Westbrook

LONDON (Reuters) - Safe-haven demand lifted the yen and the U.S. dollar on Friday after former Japanese prime minister Shinzo Abe was shot while campaigning for a parliamentary election.

The euro, at a 20-year low, was falling towards parity against the dollar and set for its worst week in four months as Europe braced to tip into recession, while markets awaited U.S. jobs data.

Abe was shot on Friday in the western city of Nara, with Prime Minister Fumio Kishida saying Abe was in a grave condition.

The yen rose as much as 0.5% immediately after the news. At 0810 GMT, it was up 0.2% at 135.81 per dollar.

"I think the yen is just playing its safe-haven role," said Bart Wakabayashi, branch manager at State Street (NYSE:STT) in Tokyo.

"FX market players (are) pretty much ingrained in the way they trade," he said, instinctively buying dollars and yen on bad news.

The euro is down 3.2% against the dollar this week as investors worry that an energy crisis brought on by the uncertainty of gas supply from Russia could tip the continent into recession.

The single currency fell 0.6% to $1.01005 against the dollar after hitting a fresh two-decade trough of $1.00720. Its declines helped to lifted the U.S. dollar index to two-decade highs. On Friday, the dollar rose 0.5% against a basket of currencies to 107.560.

"Rising EU gas prices and signs of energy rationing in Germany underline existential risks for the euro zone economy," said Jeremy Stretch, head of G10 FX strategy at CIBC, adding that a euro slide to parity "looks increasingly likely".

Graphic: Parity, https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnerogvq/Pasted%20image%201657267302692.png

Sterling was set for a second consecutive weekly declines, but traders said its 1.8% fall this week was relatively modest amid British political chaos with Prime Minister Boris Johnson quitting. The pound was down 0.65% on the day to $1.1948. [GBP/]

While surging energy prices look to take the wind out of confidence and growth in Europe, investors have also been worried about the U.S. economy, even though the most recent data has been better than expectations.

U.S. non-farm payrolls figures are the next indicator, due at 1230 GMT, with economists forecasting some 268,000 jobs were added in June.

A stronger figure could allay some recession worries, but would probably add to rate hike bets and could lift the dollar.

"Stronger payrolls gains would underpin expectations for an ever more aggressive Fed policy stance," said Commonwealth Bank of Australia (OTC:CMWAY) strategist Carol Kong in Sydney.

Two of the Federal Reserve's most vocal hawks on Thursday said they would support another 75 basis-point interest rate increase later this month but a downshift to a slower pace afterward.

The dollar has also been standing tall in emerging markets, driving several Asian currencies to multi-year lows this week and India's rupee to a record trough. [EMRG/FRX]

Bitcoin has mounted a semblance of a recovery, meanwhile, gaining nearly 13.5% on the week to $21,800.