* Euro up 0.5 pct at $1.2725
* Euro on track for biggest weekly loss vs dlr since Oct '08
* Stg hits 1-yr low on political uncertainty as vote unclear
(Adds quotes, updates prices)
By Tamawa Desai
LONDON, May 7 (Reuters) - The euro clawed back losses on Friday but was on track for big falls on the week as concerns that Greece's debt problems would spread to other euro zone countries and beyond spurred investors to shed risk assets.
The euro recouped losses after falling to its lowest since December 2001 against the yen on Thursday and hitting a 14-month low against the dollar. But the rebound was seen limited.
"It's very difficult to see how markets can draw a line under Greece, and they will keep coming back to the issue of Greek solvency," said Adam Cole, global head of FX strategy at RBC Capital Markets.
European shares fell to 3-month lows in mid-morning trade.
The euro rose as high as $1.2773 but was down about 4.5
percent on the week and on course for its worst weekly
performance since October 2008. By 0853 GMT, it was up 0.5
percent at $1.2725
Traders cited option barriers around $1.2500.
Risk averse markets made for 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
Against the yen, the euro stood at 117.19 yen
The European Central Bank was due to hold a conference call with commercial banks to discuss money market conditions. [ID:nWLA3375]
Separately, Group of Seven finance ministers were to discuss the Greek debt crisis in a call on Friday, although Japan's finance minister said he did not think they were considering joint currency intervention. [ID:nN06238681] [nTOE646036]
"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."
HUNG PARLIAMENT
Sterling sank to a one-year low against the dollar and fell sharply against the euro as almost complete results of a UK general election showed there would be a so-called hung parliament with no one party holding control. [GBP/]
The opposition Conservatives were forecast to become the biggest party but were seen falling just short of an outright majority in parliament.
"The outcome could not have been more negative as the market was waiting for a clear-cut winner either way. It now seems neither the Conservatives nor a Labour/Liberal Democrats coalition can form a majority, so there is maximum uncertainty," said RBC's Cole. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic of the election response in the gilt and sterling markets, click
http://graphics.thomsonreuters.com/10/UK_ELMR0510.gif ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The renewed rush to safety supported the dollar and the yen after U.S. stocks plunged 9 percent in the last two hours of trading on Thursday partly due to a suspected trading glitch before erasing some losses. [.N]
The dollar index <=USD><.DXY> was at 84.91, not far from
Thursday's one-year high of 85.27. The dollar rose above 92.00
yen
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. [ID:nN03205134].
(Additional reporting by Neal Armstrong in London and Satomi Noguchi in Tokyo)