Oil fell to near $70 a barrel on Friday after worse-than-expected U.S. employment figures raised doubts about the strength of the economic recovery, but a slump in the dollar helped drag crude prices off their lows.

The U.S. Labor Department said unemployment has risen to its highest rate since June 1983, with a payrolls drop of 263,000 in September coming in much higher than the market's expectation for a 180,000 fall. The U.S. unemployment rate now stands at 9.8 percent.

Compared to previous recessions the pace of the current recovery can only be characterized as glacial, said Mike Fitzpatrick, vice president at MF Global in New York.

U.S. crude futures fell as low as $68.32 a barrel, before paring losses to trade down $1.02 cents at $69.80 a barrel by 1410 GMT.

London Brent crude lost $1.07 to $68.12.

The global recession slashed energy demand and oil prices collapsed from record highs close to $150 a barrel in July 2008 to lows near $30 a barrel at the turn of the year.

Since then, investors have been backing a rebound in oil consumption as the economy finds its feet, and prices have rallied back to trade between $65 and $75 a barrel for the last two months.

At the moment it's looking vulnerable as stocks of oil are still very high and we're still not seeing a huge pick-up in demand, Sucden Financial trader Rob Montefusco said.

Oil prices were supported on Friday by a slump in the U.S. dollar, which fell against the euro and the yen.

A weaker greenback tends to boost dollar-priced commodities, as they become more cheaper in other currencies.

Traders and analysts said talks between six major powers and Iran -- the second largest oil exporter in the Organization of the Petroleum Exporting Countries (OPEC) -- over Tehran's nuclear programme could also push oil lower on Friday.

Both the United States and Iran described Thursday's talks as productive, after Iran agreed to allow U.N. inspectors into a newly disclosed uranium enrichment plant.

While we certainly can't rule out more surprises in the next 3 months, there is a good chance that Iran will fade from the front pages, leaving the diplomatic and intelligence services to quietly do their work in the background, said Societe Generale analyst Michael Wittner.

(Additional reporting by Robert Gibbons in New York and Ramthan Hussain in Singapore; editing by James Jukwey)