* New Zealand dollar suffers after earthquake (Adds comment, details, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 22 (Reuters) - The dollar and Swiss franc rose against most currencies on Tuesday, with gains seen accelerating, as geopolitical turmoil in Libya, the third largest oil producer in Africa, fueled a flight from risky assets.
Big moves in the spot market pushed up implied volatility in major currencies, with euro one-week vols jumping to 12.5 percent.
The Swiss franc's one-month implied volatility also surged to a roughly two-week high 11.20 percent.
The euro, on the other hand, recovered from losses after hawkish comments from European Central Bank officials, further increasing rate hike expectations that should enhance the appeal of euro-denominated assets.
Risk aversion remained the dominant theme, however, after the defiance of Libyan leader Muammar Gaddafi in the face of mounting public revolt stoked uncertainty and prompted a supply cut from one of the world's major oil exporters.
"We have a broad sense of risk aversion that is undermining some of the higher-yielding currencies such as the Australian dollar amid the spreading turmoil in Libya," said Omer Esiner, chief market analyst, at Commonwealth Foreign Exchange in Washington.
"The U.S. dollar and the Swiss franc are certainly outperforming some of the risky currencies and the majors."
In early New York trading, the U.S. dollar rose 0.6 percent against the Australian dollar to US$1.0030.
The dollar was up around 0.1 percent at 77.742 against a currency basket, but it was well below the day's high of 78.326.
The Swiss franc was broadly firmer, with the euro down 0.8 percent at 1.2842 francs, having earlier dropped as low as 1.2793 francs, its weakest since late January. The franc also rose against the U.S. dollar, which fell 0.9 percent yo 0.9386 francs.
The euro, which had earlier fallen as much as one percent against the dollar, cut its losses, however, after ECB policymaker Yves Mersch was quoted saying the central bank may have to adjust its language on inflation.
The ECB's Nout Wellink was also quoted expressing concerns about inflation.
These comments followed recent hawkish rhetoric from various ECB officials, including policymakers Juergen Stark and Lorenzo Bini Smaghi, which have highlighted the prospect of the ECB raising interest rates sooner than previously thought.
The euro was flat at $1.3677, well above an earlier low of $1.3525, on electronic trading platform EBS.
However, analysts said any further escalation of troubles in Libya or the Middle East could quickly encourage investors to resume cutting exposure to riskier assets.
"There has been a sharp rally in euro/dollar on the Mersch comments which caught the market the wrong way round, but it looks overdone," said Ankita Dudani, G10 currency strategist at RBS.
Oil prices, meanwhile, rallied to 2 1/2-year highs on fears the unrest in Libya could spread to other major Middle East oil producers.
Higher oil prices are seen weighing on global growth, particularly in emerging countries heavily dependent on oil and commodity imports. Rising prices have already led to higher inflation, which can threaten vulnerable economies.
The New Zealand dollar tumbled to US$0.7455, its weakest since late December. It was last down 1.9 percent at US$0.7495. Speculation that the economic damage caused by an earthquake which rocked the country's second biggest city may increase the chance of an interest rate cut.
(Additional reporting by Jessica Mortimer in London) (Editing by Theodore d'Afflisio)
