* Dollar gains on Iraq-Iran tensions
* Euro/dollar options barrier broken at $1.4300
* Swiss franc stronger vs dollar and euro (Recasts, updates prices, adds comment)
NEW YORK, Dec 18 (Reuters) - The dollar rose in a safe-haven bid against the euro and yen on Friday after Iraqi reports that 11 Iranian troops had entered Iraqi territory on and raised the Iranian flag at an oilfield whose ownership they dispute.
Iraq's deputy interior minister, Ahmed Ali al-Khafaji, initially denied the reports but then reversed position and said the incursion on Friday was the latest in a series this week.
He said the Iraqi government had take no military action but stressed it would seek a measured diplomatic response to the situation. For more on these stories see [ID:nLDE5BH167] and [ID:nLDE5BH19I] and [ID:nLDE5BH1KZ] and [ID:nLDE5BH1BI]
The Swiss franc, which like the dollar benefits from safe-haven flows in times of uncertainty, rose on rumors of a coup in Pakistan that were quickly denied and by stop-loss orders that propelled it higher. [ID:nLDE5BD0AK]
"It's Greece, it's Pakistan and certainly Iran has been been one of the factors helping to support the dollar," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Midway through the New York session, the euro was down 0.5
percent on the day at $1.4270
While the scale of the Iranian incursion was small, investors were clearly rattled.
Iraq and Iran have had better political relations since the U.S.-led invasion of Iraq and Iraq's regime change in 2003, but there are still 115,000 U.S. troops in Iraq amid tensions between Washington and Tehran over Iran's nuclear program.
BARRIER BROKEN
Selling in the euro accelerated after it broke through $1.4300 for the first time since Sept. 4.
"Barrier options at $1.43 were broken, forcing those defending the euro at $1.43 to dump their holdings given that their options are now worthless," said Brian Dolan, chief currency strategist, at Forex.com. "That brought in momentum sellers on the euro."
Against the Swiss franc, the euro was last at 1.4943 francs
The euro fell to its weakest level since March when the Swiss National Bank intervened to sell francs after announcing steps to fight deflation.
"The markets are fairly illiquid, which is exaggerating moves," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
"There may not be much benefit for the SNB to intervene now, given the markets are so illiquid," he added.
The euro was on track for its third straight weekly fall against the dollar. It struggled this week after Standard & Poor's became the second ratings firm this month to downgrade Greece.
The dollar was little changed against the Swiss franc
"The Swiss economy and Swiss banking system are traditionally the safe haven," said Joseph Trevisani, chief market analyst at FX Solutions in Ridgewood, New Jersey. "But with thin liquidity it is difficult to tell the source of the movement."
DOLLAR, YEN PRESSURED
Yen crosses, which fell sharply in the wake of the euro's fall against the Swiss franc, came off their lows as investors who had bet against the yen were forced to buy to reduce losses.
The euro was up 0.5 percent on the day against the yen
The dollar was up 1 percent at 90.77 yen
The Bank of Japan kept interest rates steady as expected, but in a surprise move, changed its definition of long-term price stability, saying it would not tolerate zero inflation or falling prices. [ID:nT289621] (Reporting by Nick Olivari; Additional reporting by Gertrude Chavez-Dreyfuss in New York and Tamawa Desai in London; Editing by Leslie Adler)