* Dollar gains on Iraq-Iran tensions
* Swiss franc stronger vs dollar and euro
* German Ifo index slightly firmer than expected (Recasts, updates prices, adds comment, changes dateline, previous LONDON)
NEW YORK, Dec 18 (Reuters) - The dollar rose against the euro and yen on Friday after reports that Iranian troops had briefly entered Iraqi territory on Thursday and spent several hours at an Iraqi oilfield.
Iraq's deputy interior minister denied the reports but investors were still rattled.
The dollar and the Swiss franc benefit from safe-haven flows in times of uncertainty.
The Swiss franc rose as investors unwound long euro positions in the approach to the year-end, also helped by rumors of a coup in Pakistan that were quickly denied and by stop-loss orders which propelled it higher.
"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."
In early New York trade, the euro was down 0.1 percent on the day at $1.4330 after the Iraq reports, down from a peak of $1.4411 hit earlier in the global session as investors bet its recent fall against the dollar had been too far, too fast.
The dollar was down 0.3 percent against the Swiss franc at 1.0446 francs.
The euro was last at 1.4955 francs, down 0.4 pct on the day, and below the SNB's perceived threshold of 1.50 francs at which they will intervene to weaken the Swiss franc.
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 in London. "Momentum is key, and you don't want to go against momentum right now."
"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 S&P became the second ratings firm this month to downgrade Greece.
The euro zone common currency showed little reaction to the German Ifo institute's sentiment index which rose to 94.7 in December, slightly higher than expectations for 94.5, and up from 93.9 the previous month.
DOLLAR, YEN PRESSURED
The dollar index, a non-traded calculation of the greenback's performance against six other major currencies, rose 0.1 percent to 77.789, off Thursday's peak of 77.943 which was its highest since early September.
Yen crosses, which fell sharply in the wake of euro/Swiss franc's fall, came off their lows as investors who had bet against the yen were forced to buy to reduce losses.
The euro was up 0.4 percent on the day against the yen, sterling was up 0.5 percent and the Australian dollar rose 0.5 percent against the yen.
The dollar was up 0.6 percent at 90.40 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.
BOJ Governor Masaaki Shirakawa said the new definition of long-term price stability did not mean monetary policy would be guided by short-term price moves alone.
"While shared concern about deflation by both the government and the BoJ should limit upward pressure on the yen, their commitment remains uncertain and poses near-term risk of disappointment and a rebound of the yen," said Barclays analysts in a note. (Reporting by Nick Olivari; Additional reporting by Tamawa Desai in London; Editing by James Dalgleish)