* Yen breaches 85 yen to 14-year high, then retreats
* Japan finance minister raises prospect of G7 statement
* Riskier positions unwound on concerns about Dubai debt
* Euro, sterling off lows as stocks pare losses (Updates prices, adds comment)
By Wanfeng Zhou
NEW YORK, Nov 27 (Reuters) - The yen on Friday hit a 14-year high against the dollar before the greenback rebounded, as fears of a possible Dubai debt default boosted safe-haven demand for the U.S. and Japanese currencies.
The euro also regained some ground as stock markets trimmed losses. Low trading volume due to the U.S. Thanksgiving holiday on Thursday may have exaggerated currency moves, traders said.
"The European currencies are recovering a bit in terms of the euro and the British pound because equities are off the lows," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
Analysts say the yen also pulled back after Japan signaled growing discomfort with the yen's surge and Finance Minister Hirohisa Fujii raised the prospect of a Group of Seven joint statement on currencies.
The Bank of Japan stepped closer to currency intervention on Friday than at any time in the last five years by checking exchange rates with commercial banks. Still, market sources said intervention was highly unlikely in the short term.
The dollar fell as far as 84.83 yen, its weakest since 1995, edging ever closer to its record low of 79.75, before pulling back up to 86.84 yen, up 0.4 percent on the day.
Meanwhile in the Gulf, Dubai struggled to ease fears of debt default on Thursday after its move to delay repayments at two flagship firms shook confidence in the Middle East and raised the prospect of further huge debt write-offs for banks.
The ICE Futures U.S. dollar index, a measure of its value against six major currencies, was up 0.2 percent at 74.993, having been up around 1 percent earlier.
The euro was down 0.3 percent at $1.4967, having earlier slid as low as $1.4830, down more then 3 cents from a 15-month high of $1.5144 touched on Wednesday.