* Euro up 0.2 percent at $1.2690 but seen vulnerable
* Euro on track for biggest weekly loss vs dlr since Oct '08
* Sterling hits 1-yr low on political uncertainty as vote unclear
* G7 finmins to discuss Greece, U.S. Treasury official says
* Japan finmin says G7 won't discuss joint FX intervention
(Adds quotes, updates prices, changes dateline prvs TOKYO)
By Tamawa Desai
LONDON, May 7 (Reuters) - The euro clawed back losses on Friday but was still on track for big falls on the week as concerns that Greece's debt problems would spread to other euro zone countries prompted investors to shed riskier assets.
The euro fell to its lowest since December 2001 against the yen on Thursday and hit a 14-month low against the dollar.
It later recouped losses and was further boosted after a U.S. Treasury official said G7 finance ministers would discuss the Greek debt crisis in a call on Friday, although Japan's finance minister said he did not think they were considering joint FX intervention.
"The contagion is spreading and creating panic in financial markets," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "The news of the G7 call has soothed, but it is doubtful that will last."
The euro rose as high as $1.2737 on trading platform EBS but was down about 4.8 percent on the week and was on course for its worst weekly performance since October 2008. By 0721 GMT, it was up 0.2 percent at $1.2690.
Option barriers were cited around $1.2500, traders said.
Risk averse markets made for thin, volatile conditions. Euro/dollar vols were trading at year-to-date highs, though still some way off the record levels seen in the wake of the Lehman collapse in 2008.
One-month euro implied volatility was at 16.25 compared to around 28.00 at the peak of the Lehman fallout. The risk reversal moved further in favour of the downside, with one-month 25-delta around 2.75 for euro puts.
Against the yen, the euro stood at 117.24 yen, up 2.3 percent. It dropped to 110.49 yen on EBS on Thursday, when it shed 5 percent on the day and hit its weakest level since December 2001, according to Reuters data.
"The market is at loss as to where to find a conclusion to this Greece debt problem and there is fear that problems will spread to other countries," said a proprietary trader at a Japanese trust bank.
HUNG PARLIAMENT
Sterling sank to a one-year low against the dollar and fell sharply against the euro as partial results of a UK general election suggested there would be a hung parliament with no one party emerging as a clear winner.
The opposition Conservatives were forecast to become the biggest party but were seen falling just short of an outright majority in parliament.
Labour's Gordon Brown remains prime minister and the incumbent has the right to try to form a government, but may have difficulty in forming a coalition to retain power.
"A hung parliament should have already been priced in to sterling, but with uncertainty over the shape of the new government and therefore economic policy likely to continue in to next week the currency should remain on the back foot," said Stuart Bennett, currency strategist at Credit Agricole CIB.
The renewed rush to safety supported the dollar and the yen. The dollar index was at 84.91, not far from Thursday's one-year high of 85.27.
The dollar could get a boost if the U.S. employment report later in the day shows 200,000 jobs were added in April, as forecast, up from 162,000 in March..
The dollar also pared a chunk of its losses on the yen, rising above 92.00 yen, after hitting 87.95 on Thursday when it shed nearly 4 percent.
The Swiss franc pulled back from a record high against the euro of 1.4005 francs the day before as the Swiss National Bank pulled its bids.
(Additional reporting by Neal Armstrong in London and Satomi Noguchi in Tokyo)