* Dollar index at 2-month high of 86.871
* Recession fears increase after grim Japanese GDP data
* G7 do not mention yen or sterling; Euro, pound fall
* Yen cuts gains vs dlr after Japan finmin says may resign
(Adds quotes; changes byline, dateline; previous TOKYO)
By Jessica Mortimer
LONDON, Feb 16 (Reuters) - The dollar hit a two-month high on a trade-weighed basis on Monday as global recession fears encouraged buying of safer assets, while the yen rose versus the euro as a G7 meeting omitted mention of the currency's strength.
Both the dollar and the yen gained due to their perceived safe-haven status as data showing Japan's economy shrank sharply in the last three months of 2008 worsened fears of a deep global recession and stoked risk aversion.
Finance ministers from the Group of Seven countries met in Rome at the weekend and many in the market had anticipated some rhetoric on the yen. When this failed to materialise, investors resumed buying of the Japanese currency.
The yen briefly trimmed gains against the dollar, however, after Japanese finance minister Shoichi Nakagawa said he would resign if asked to after coming under fire for his behaviour at a G7 news conference.
The euro came close to a two-month low against the dollar, while sterling was near a two-week trough, as European equities fell 0.5 percent, with investors troubled by fresh worries about the banking sector.
Further weighing on the euro were fresh worries about western European banks' exposure to troubles in eastern Europe as S&P rating agency warned it could cut the sovereign ratings of Ukraine due to refinancing concerns.
The pound also lost ground as the G7 meeting did not mention the recent sharp fall in the value of the UK currency, as many in the market had expected.
"The G7 did not mention the yen or sterling, and it is clear that the pound needs to weaken while the yen will continue to strengthen," Commerzbank currency strategist Antje Praefcke said.
"Overall, recession fears have come back into the market".
The dollar index rose to a two-month high of 86.871, according to Reuters data.
At 0935 GMT, the euro was down 0.8 percent against the U.S. currency at $1.2761 and the pound lost 1 percent to $1.4243.
Against the yen, the dollar edged into positive territory, briefly hitting a session high of 92.08 yen on the Nakagawa comments. The euro remained very weak against the Japanese currency, however, losing over 1 percent to 117.28.
Analysts expected trade on Monday to be relatively subdued, however, with U.S. markets closed for a public holiday.
RECESSION FEARS
Data showed an unprecedented slump in exports caused Japan's economy to shrink by 3.3 percent in October-December, the sharpest fall since the first oil crisis in 1974 and bigger than analysts' forecasts.
Analysts said the grim figures underlined the deep crisis facing the global economy, increasing demand for safer assets and bolstering the dollar and the yen.
"Data has been very weak out of Japan in recent months, but people are still buying the yen on the back of risk aversion and recession fears," Commerzbank's Praefke said.
Analysts also noted market disappointment at the lack of movement towards coordinated action to tackle the current crisis at the G7 meeting.
"This weekend's G7 meeting was long on rhetoric and short on action," Calyon head of global FX strategy Mitul Kotecha said in a note to clients.
"Although officials appeared keen to show that they meant business, there were no new plans or measures announced".
Ministers warned of a deep crisis and pledged to do all they could to combat recession without distorting free trade.
Investors will be looking for clues this week from the United States, including details on its housing bailout and automaker restructuring plans.
The housing rescue plan is due to be announced by President Barack Obama on Wednesday and is expected to break new ground by helping troubled borrowers even before they miss a mortgage payment.
(Reporting by Jessica Mortimer; Editing by Andy Bruce)