* Yen strengthens beyond 106 as investors look for safety
* Euro gains despite Italian political uncertainty
* Dollar headed for biggest weekly decline since June
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds details, updates prices)
By Tommy Wilkes
LONDON, Aug 9 (Reuters) - The yen rose on Friday as
U.S.-China trade conflict jitters encouraged demand for
safe-haven currencies, while the euro shrugged off a breakdown
in Italy's governing coalition and the prospect of new
elections.
After days dominated by concern about the escalating trade
war between Beijing and Washington, markets looked to be ending
the week on a calmer note.
The Chinese yuan rose further from Monday's lows, when
Beijing let the currency weaken past 7 to the dollar.
"Markets have calmed down now that the renminbi has
stabilised," said Thu Lan Nguyen, a strategist at Commerzbank in
Frankfurt. "But dollar/yen and euro/Swiss franc are still near
their recent highs."
The yen gained 0.2% to 105.82 yen per dollar JPY=EBS , not
far from a seven-month high of 105.5 earlier this week. It was
on course for its second weekly gain versus the U.S. dollar and
its third weekly gain versus the Australian and New Zealand
dollars.
The Swiss franc, another currency investors seek in times of
economic uncertainty, was unchanged but had earlier strengthened
past 1.09 francs per euro EURCHF=EBS .
"FX markets have been resuscitated by renewed hard Brexit
fears and the intensification of trade/currency wars," Bank of
America Merrill Lynch analysts said in a research note.
They said that the risk of intervention by central banks had
risen but that was not their base case, and added that they
remained "positioned for higher volatility and further
de-risking."
The euro rose 0.2% to $1.1202, showing little reaction after
Italian Deputy Prime Minister Matteo Salvini said his League
party's coalition with the 5-Star Movement was untenable and
called for early elections "We still have markets in a risk-off mood, which is actually
supporting the euro. This is overshadowing these idiosyncratic
political issues we have in the euro zone," Commerzbank's Nguyen
said.
The euro has done particularly well against the Swedish
crown and eastern European currencies this week, she noted.
The dollar index =USD , which measures it against a basket
of six major currencies, slipped to 97.545 .DXY and remained
on course for its biggest weekly decline since June 21.
Sterling fell 0.3% to $1.2105 GBP=D3 and 0.5% to 92.54
pence against the euro EURGBP=D3 , after the UK reported its
economy shrank in the second quarter The New Zealand dollar rose 0.2% to $0.6493 NZD=D3 but was
headed for its third weekly decline.
The kiwi slumped to its lowest in more than three years this
week after the central bank cut interest rates more than
expected on Wednesday and hinted at taking rates into negative
territory.
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U.S. dollar vs Japanese yen https://tmsnrt.rs/2YBD1lT
Major FX - MTD performance https://tmsnrt.rs/2YBUxqt
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(Editing by Larry King)