By Alun John

HONG KONG (Reuters) - The safe-haven yen reversed course on Friday, giving up some its gains from earlier this week as markets seemed to take cheer from news of talks between the U.S. and Russia about Ukraine, helping other risk-friendly assets including the Aussie dollar.

The dollar rose 0.2% on the yen, and earlier reached as high as 115.27 yen, having touched a two-week low of 114.78 in early Friday trading.

The yen and rival safe-haven, the Swiss franc, have gained this week amid high tension on the Ukrainian border, though the dollar gained 0.12% on the franc on Friday.

"There has been a bit of a reversal today, presumably because we haven't seen any real follow through to the weakness in U.S. equity markets in the afternoon, when the rhetoric ramping up from both sides and we had a big sell off in risk," said Ray Attrill head of FX strategy at National Australia Bank (OTC:NABZY).

"Asia doesn't seem to have got the same memo as the U.S. and Europe," said Attrill.

The Australian dollar rose 0.27% on Friday in line with the "risk-on" mood as e-mini futures for the S&P500 rose 0.7% and spot gold shed 0.4%. [MKTS/GLOB]

One contributor to the shift in tone was U.S. State Department saying late on Thursday that Secretary of State Antony Blinken had accepted an invitation to meet with Russian Foreign Minister Sergei Lavrov late next week provided Russia does not invade Ukraine.

This provided some relief after a jittery Thursday following exchanges of fire between Kyiv's forces and pro-Russian separatists.

While the two have been at war for years and a ceasefire is periodically violated, the hostilities renewed Western fears of an imminent Russian invasion. U.S. President Joe Biden said Moscow is preparing a pretext to justify a possible attack.

As a consequence, the S&P 500 suffered its biggest daily percentage drop in two weeks on Thursday and gold jumped. [.N]

The euro continued its week of choppy trading based on Ukraine headlines and was at $1.1365 on Friday, while the pound was at $1.3605 supported by markets betting on more monetary tightening from the Bank of England.

Central bank policy was also a factor in the yen, after the Bank of Japan this week offered to buy an unlimited amount of benchmark 10-year government bonds to underscore its resolve to contain domestic borrowing costs.

Markets have not aggressively tested the BOJ's 0.25% yield target on those bonds, but yields on other tenors have been rising. [JP/T]

Meanwhile, in the United States, policy makers have continued to publicly debate how aggressively the Federal Reserve should raise interest rates, and whether it should begin with a 25 or 50 basis point hike at its March meeting.

Cleveland Fed President Loretta Mester said late on Thursday the Fed would need to raise interest rates at a faster pace and shrink its balance sheet more quickly than it did after the "great recession".

The risk on mood did little to help bitcoin, however, which was trading around $40,500, around a two-week low, after a tumble late on Thursday left it down 7.6% on the day.

"Crypto has shown us once again that it is a high beta risk asset, and it has a dark sinister look that could morph into something ugly," said Chris Weston, head of research at Melbourne based brokerage Pepperstone in a morning email.