* Yen rises versus euro, dollar on safety demand
* Focus back on Ukraine ahead of Crimea referendum vote
* Traders wary about euro as ECB talks down exchange rate
By Richard Leong
NEW YORK, March 14 (Reuters) - The yen rose on Friday, poised for its biggest weekly gains in more than a month against the euro and dollar, as traders flocked to it on growing tension in Ukraine and fears about the health of the Chinese economy.
The euro was also under pressure since hitting a 2-1/2 year high versus the greenback earlier this week in the wake of comments from European Central Bank President Mario Draghi who raised concerns about the strength of the common currency.
“I don’t think anyone wants to hold any large risky positions going into the weekend,” said Shaun Osborne, chief foreign exchange strategist at TD Securities in Toronto.
Draghi said on Thursday that the strength of the euro was increasingly relevant to ECB’s assessment of price stability - its central goal - because of the impact on inflation, which has strayed well below the official target.
A strong currency reduces price pressure since it pares costs on imported goods and services.
The euro fell as much as 0.5 percent against the yen in early U.S. trading before trimming losses to trade 0.25 percent lower on the day at 140.88 yen.
Against the dollar, the euro rebounded from early session losses and was 0.33 percent higher on the day at $1.3914 .
“We are finding good support on dips in the euro,” TD’s Osbourne said.
The euro’s decline this week erased much of the gains made after the ECB held back from easing policy last Thursday despite projecting persistently low inflation. Draghi’s comment then that the euro’s strength had very little impact on imported inflation had helped it rally broadly.
On the week, the euro was on track to fall 1.71 percent against the yen, while it was poised to rise 0.25 percent versus the greenback.
Traders said the euro is likely to keep drawing support from the ECB’s decision to keep policy unchanged, higher money market rates, and the euro zone’s large current account surplus.
Traders have favored the yen in the past 24 hours as fears about a war in Ukraine’s Crimea peninsula and jitters over the Chinese economy in the wake of that country’s first private bond default last week.
Russia launched new military exercises near its border with Ukraine on Thursday, showing no sign of backing down on plans to annex its neighbour’s Crimea region. U.S. Secretary of State John Kerry said serious steps would be imposed by the United States and Europe if the referendum on Crimea joining Russia takes place on Sunday as planned.
“The risks to global growth both from China as well as from the Crimean situation are supporting yen,” said Manuel Oliveri, FX strategist at Credit Agricole in London.
The dollar fell 0.5 percent to 101.36 yen, retreating from Thursday’s high of 102.865. It hit 101.22 in U.S. trading as yen bulls targeting the March 3 low of 101.20. On the week, the dollar has lost 1.7 percent, on track for its biggest losses since late January.
Reflecting some of the nervousness, one-week implied volatilities in the dollar/yen pair - a gauge of how sharp currency swings will be - rose to 8.925 percent from a low of around 7.20 percent on Thursday.
“In the near term more risk-averse trading conditions may continue to encourage a stronger yen,” Lee Hardman, a currency analyst at Bank of Tokyo Mitsubishi, wrote in a note.
“The Chinese economy appears to have downshifted to a slower pace of growth in the first quarter, as evident in the weak economic reports from February.”
Chinese Premier Li Keqiang warned on Thursday that the economy faced “severe challenges” in 2014 while expectations of more debt defaults kept alive worries about the state of its financial sector.