* Move towards safe havens squeezes out euro bears
* Approval of U.S. air strikes dominates market mood
* Dollar hits 2-week low versus safe haven yen (Updates prices, adds comment, changes byline and dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 8 (Reuters) - The yen and Swiss franc rose on Friday as investors sought the relative safety of these currencies after yet another spurt of geopolitical tension that saw the United States launch an air strike against Iraq for the first time since American troops withdrew in 2011.
Fighting has also resumed in Gaza between Palestinian militants and Israel, while the conflict between Russia and Ukraine remained very much on investors’ radar.
While the Gaza and Ukraine crisis has been raging for weeks, the Iraq development has added another layer of anxiety in the market.
President Obama authorized air strikes after tens of thousands of Christians fled for their lives from Islamic State fighters who have crucified and beheaded captives.
In times of geopolitical stress, the yen and Swiss franc are the favored currencies because of their deep liquidity. The dollar is also considered a safe haven, although that view is being expressed more through buying the greenback versus emerging market currencies.
“It’s a safe haven thing. The addition of the strikes in Iraq has contributed to this,” said Vassili Serebriakov, currency strategist, at BNP Paribas in New York.
“Some of the dollar longs are being unwound against the euro and yen. It’s a bit of a setback to the bullish dollar view, but I still think this should be temporary.”
The benchmark U.S. Treasury yield fell to a 14-month low as bond prices rose after the air strike news, helping to weaken the dollar about 0.3 percent against the yen below 102 yen. . The greenback earlier fell to a two-week low.
The dollar dropped 0.5 percent versus the Swiss franc to 0.9038, after sliding to a two-week low earlier in the session.
The euro was respectively 0.6 and 0.5 percent higher against sterling at 79.88 pence and the U.S. currency at $1.3421. Several traders said that looked largely the result of a brief squeeze on bets taken against the single currency which might clear the way for more losses next week.
“There could be a little bit of profit-taking in this move on the euro,” said Ian Stannard, head of European FX strategy at Morgan Stanley in London.
“I think the euro will come under more pressure next week. There was a lot of emphasis from the European Central Bank yesterday on the geopolitical risks to growth and if we see sanctions begin to take an effect, that will leave the euro exposed.”
Currency markets in general have been resistant to alarms over Ukraine, Gaza or Iraq, but there is growing concern that a mix of growth-sapping sanctions and potentially higher oil prices could derail the global economy.
That has begun to overshadow the past month’s big play - a push by the dollar to 11-month highs that has supported speculation the U.S. currency was finally on track for a longer-term rally. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Patrick Graham in London Editing by W Simon)