* Yen up across board, now best week vs dollar since 2008
* Gives back some gains on speculation Japan will intervene
* Japan & China both shut for public holidays
* Sweden cuts rates deep into negative territory (Updates after intervention worries knock yen back)
By Patrick Graham
LONDON, Feb 11 (Reuters) - The yen racked up its strongest weekly gains since the 2008 financial crisis on Thursday before recoiling sharply on speculation officials may soon step in to stem a flood of capital seeking the traditional safety of Japan.
Dealers with major banks played down speculation that the Bank of Japan had already stepped in mid-morning in Europe after a two-minute spike in the dollar from 112 to 113 yen. JPY=
A Japanese government source gave no comment on whether Tokyo had intervened in the middle of a national holiday and dealers said trading volumes were too low to suggest it had.
"The volumes in that spike were less than 1 million per tick so there is no evidence in that of an official bid," said a trader with one Asia-focused bank.
A chaotic week on European and U.S. stock markets has sent investors scuttling for the perceived safety of the yen, upping its value against the dollar by almost 9 percent since Feb. 1.
That is the strongest performance by the yen since the aftermath of the collapse of Lehman Brothers in 2008 and makes a mockery of the Bank of Japan's shock move at the end of January to weaken it with negative interest rates.
"We got to 8 a.m. this morning and it just hit in a wave," said Richard Benson, head of portfolio management at currency fund Millennium in London.
He said the surge was probably driven by model flow from big fund investors adjusting to the sharp moves on stock markets of the last few days.
The euro and Swiss franc also benefited, hitting their highest in around four months against the dollar.
With Japanese markets closed, overall volumes in the yen were half of those a day earlier on the EBS trading platform, which some warned could be exaggerating the scale of the moves.
But the concern over the world's growth prospects and the solidity of its banks is palpable. European stock markets were down another 3 percent and have lost 28 percent from peaks last April. Shares in Deutsche Bank (DE:DBKGn) fell 9 percent.
Sweden's Riksbank was the latest to respond, cutting interest rates further into negative territory and by more than analysts had expected, driving its crown currency EURSEK= more than 1 percent lower before it staged a recovery. from a number of major banks have raised the prospect this week of Japan outright intervening in currency markets, as it last did in October 2011. Such a move could be a hard sell to global policy forums like the IMF and G20, which generally discourage intervention to weaken currencies.
"It looks like we may head back to direct FX intervention, but that is also hard to justify and may ultimately fail," HSBC analysts said in a note on Wednesday.
Market thinking and moves in the last 24 hours have been dominated by Federal Reserve Chair Janet Yellen, whose testimony to Congress on Wednesday gave investors no reason to change their minds that the next rate hike will be a long time coming.
Sticking largely to the script, Yellen made clear that the U.S. central bank remained on a path of 'gradual' policy tightening, although she also highlighted growing risks facing the economy. gave currency investors the green light to continue the current trading theme: buying the safe-haven yen.
By 1334 GMT, the dollar was 0.9 percent lower at 112.38 yen JPY= , having briefly reached 110.99 yen.
The euro last traded at $1.1324 EUR= , up a third of a percent on the day. The single currency was more than 1 percent higher against sterling EURGBP= at 78.68 pence but 0.6 percent down against the yen at 127.28. EURJPY=