FOREX-Yen hands back some gains as Ukraine effect cools

* Dollar recovers from biggest one-day loss since April 10

* Euro also higher after hitting five-month low vs yen

* Central bank support backstop against geopolitical worry (new throughout, changes dateline, previous TOKYO)

By Patrick Graham

LONDON, July 18 (Reuters) - The euro and the dollar gained ground against the yen on Friday, recovering from a surge of money into the traditional security of the Japanese currency a day earlier due to worries over Ukraine.

The yen hit a five-month high versus the euro in Asian time as investors worried that the shooting down of a Malaysian airliner would stoke tensions between Russia and the West, potentially leading to heavier economic sanctions.

The yen had handed back some of those gains as European trading began, down around 0.2 percent against both the euro and the dollar compared to Thursday's U.S. closing levels.

Strategists said that, while events in Ukraine and Israel's launch of a ground campaign in Gaza were a concern, markets have grown used to the idea that any deeper economic fallout would always be countered by yet more action from global central banks.

"Every time we get a slight retreat in risk appetite, it is if anything used by people as a chance to buy back in rather than scale back on risk properly," said Richard Falkenhall, a currency strategist with Swedish bank SEB (Other OTC: SEBYF - news) in Stockholm.

"Before the 2008 crisis these sort of events had a much bigger impact on financial markets. Now (NYSE: DNOW - news) everyone knows that if something goes wrong the Fed can just halt tapering or even increase it again. That support wasn't there in the past."

U.S. Treasury yields, depressed by the trillions of dollars of bonds the U.S. Federal Reserve has bought on the market and a key driver for the dollar, were also up a touch in morning trade after falling around 10 basis points on Thursday.

Still, the retracement in the yen was minimal and European stocks opened lower, with some European airlines suffering.

The Malaysian Airlines passenger jet was brought down over eastern Ukraine. All 298 people on board were killed, sharply raising the stakes in a conflict between Kiev and pro-Moscow rebels in which Russia and the West back opposing sides.

The yen is still up around 0.7 percent this week against the euro.

"Should risk sentiment falter again today, we would be looking for USD/JPY to break the 101.00 support. USD/JPY 101.6 appears as a solid resistance," said Petr Krpata, a strategist with Dutch bank ING in London.

With European markets moving firmly into the summer lull, there was little movement in other currency rates and little by the way of top tier data to go on.

The euro, which has suffered this week from hints that U.S. officials may yet raise interest rates earlier than markets expect next year, traded broadly flat against the dollar at $1.3532. (edotong by Ralph Boulton)