Rumors of a coup in Pakistan had sent the safe-haven Swiss franc surging but it slipped after the reports were denied, with dealers saying the currency was also pressured by expectations of intervention by the Swiss National Bank.
The single currency recovered some ground against the dollar which had surged on Thursday to a three-month high against a basket of currencies <.DXY> and received a further mild boost from a higher-than-expected reading from German Ifo Institute's sentiment index for December.
The markets are fairly illiquid which is exaggerating moves, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFG. Momentum is key and you don't want to go against momentum now.
The euro rose 0.4 percent to $1.4401 after falling close to $1.4300 on Thursday, the lowest since early September.
It has been under pressure due to fiscal problems in euro zone member Greece which has been hit by two ratings downgrades this month -- the latest on Thursday by Standard & Poor's.
Risk appetite recovered slightly after Pakistani President Asif Ali Zardari said there was no coup, dousing rumors that started after a government minister suspected of corruption was barred from leaving the country.
OIL HELPS STOCKS
Crude oil rose 0.8 percent to $73.41 a barrel, underpinned by signs of a recovery in U.S. demand and the prospect of increased winter demand.
European stocks rose as those stronger oil prices pushed up energy stocks and offset weakness in financials.
The FTSEurofirst 300 <.FTEU3>, the index of top European shares was up 0.8 percent after losing 1.3 percent on Thursday. Oil firms led the gains with BP , Royal Dutch Shell and other oil firms adding 0.1-1.5 percent.
Banking shares however continued to decline, with most European banks down 0.6 percent to 5.2 percent.
World stocks <.MIWD00000PUS> rose 0.3 percent. The index has risen nearly 29 percent this year, on track for one of the biggest gains in the past 20 years.
Most of the people are getting cautious. Everybody is closing books. They say 'OK we had a great year so why do we have to risk more?', said Koen de Leus, economist at KBC Securities.
We are at the end of the year so volumes are not going to be very high.
Asian shares <.MIAPJ0000PUS> fell half a percent as Chinese and Hong Kong bourses hit three-week closing lows on tough new government regulations on the real estate and banking sectors.
Emerging equities <.MSCIEF> lost 0.15 percent. The index has gained about 70 percent this year.
U.S. stocks are expected to open on a firmer note with futures for the Dow Jones average, S&P 500 <.SPc1> and the Nasdaq Composite all up 0.3-0.7 percent.
In bond markets, 10-year Bund yields were little changed at 3.152 percent, with analysts expecting the contract to hold its recent gains, fueled by the worries in Greece.
But the sell-off in Greek bonds stalled, leaving the 10-year Greek yield over benchmark Bunds steady from late Thursday's 254 basis points and well off the 272 bps level hit on Thursday after the S&P ratings downgrade.
(Reporting by Sujata Rao, editing by Mike Peacock)