UPDATE 8-Police consider manslaughter charges over deadly London tower block blaze
* Police fear death toll could rise above 79 (Adds reaction from resident and PM May over evacuation)
* Yen benefits from safety flows
* Traders wary about euro as ECB talks down exchange rate
* Focus back on Ukraine as Crimea referendum looms
By Anirban Nag
LONDON, March 14 The yen was in demand on Friday, heading for its biggest weekly gain in more than a month against the dollar, targeted as a safe option given tensions in Ukraine and worries about the health of the Chinese economy.
The euro was pegged back by a sharp ratcheting up of comments by European Central Bank policymakers about the exchange rate, which is near 2-1/2 year highs on a trade-weighted basis.
With the Swiss National Bank capping the value of its franc, a traditional safe haven currency, the relatively liquid yen is a major draw for investors due to Japan's similarly stable, export-driven economy.
ECB President Mario Draghi said on Thursday that the strength of the euro was increasingly relevant to the bank's assessment of price stability - its central goal - because of the impact on inflation, which has strayed well below the official target.
The euro was down 0.3 percent against the yen at 140.88 yen , unwinding all 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.
The euro stayed below its 2 1-1/2 year highs against the dollar struck on Thursday, trading at $1.3885 with Asian central banks cited as buyers at lower levels. 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.
"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. "The German stock market is underperforming due to worries that sanctions on Russia could have an impact on Germany and by extension on global growth."
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 dollar fell 0.4 percent to 101.45 yen, retreating from Thursday's high of 102.865 with 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 8.45 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."
Market sentiment was already fragile after another batch of disappointing Chinese data on Thursday reinforced fears of a slowdown in the world's second-biggest economy.
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.
Commodity-linked currencies, usually sold in times of heightened risk aversion, were under pressure. That took the shine off the Australian and New Zealand dollars.
The Aussie last stood at $0.9035, having pulled back from a one-week high of $0.9104, while the kiwi was knocked back to $0.8535 from an 11-month peak of $0.8607.
Later in the day, investors will see if the U.S. producer price index and the University of Michigan sentiment index offer evidence that the economy is regaining strength, following solid retail sales and employment data on Thursday.
* Unarmed drones would help watch Chinese navy (Adds details from White House briefing)