* Euro up 1 pct at $1.2790 <EUR=> but trade volatile
* Euro on track for biggest weekly loss vs dlr since Oct '08
* Sterling hits 1-yr low on uncertainty after UK vote
(Adds quote, updates prices)
By Neal Armstrong
LONDON, May 7 (Reuters) - The euro clawed back some of this week's heavy losses in volatile trade on Friday as investors perceived selling to be overdone, though concerns the sovereign debt crisis could spread still weighed on sentiment.
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.
"I see this as a corrective rebound from this week's heavy losses. I expect the bounce to be short-lived and remain bearish," said Ian Stannard, senior currency strategist at BNP Paribas.
The euro rose as high as $1.2797 but was down about 4 percent on the week and on course for its worst weekly performance since October 2008. By 1122 GMT, it was up 1 percent on the day at $1.2790 <EUR=>.
"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.
Risk averse markets made for volatile trading in poor liquidity. 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 <EUR1MO=ICAP> was at 16.00 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 <EUR1MRR=ICAP> around 2.75 for euro puts.
Against the yen, the euro stood at 118.20 yen <EURJPY=R>, up 3 percent after falling to 110.49 yen on EBS on Thursday.
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."
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 won most seats in parliament but fell just short of an outright majority. [ID:nLDE64600H]
The pound pared losses after Liberal Democrat leader Nick Clegg said the Conservatives should try to form the next government. [nLDE6460YG] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic of the election response in the gilt and sterling markets, click
The dollar index <=USD><.DXY> was at 84.50, slipping from Thursday's one-year high of 85.27. The dollar rose above 92.00 yen <JPY=>, after hitting 87.95 yen on Thursday when it shed nearly 4 percent.
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 Tamawa Desai, editing by Nigel Stephenson)