* 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 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, 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.
“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, which measures it against a basket of six major currencies, slipped to 97.545 and remained on course for its biggest weekly decline since June 21.
Sterling fell 0.3% to $1.2105 and 0.5% to 92.54 pence against the euro, after the UK reported its economy shrank in the second quarter
The New Zealand dollar rose 0.2% to $0.6493 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.
Editing by Larry King