Asian shares edged down and the euro hovered near a 16-month low against the dollar and an 11-year low against the yen on Friday on worries the euro zone debt crisis is crippling European banks, but more positive U.S. data helped curb the losses.

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> was down 0.1 percent while Japan's Nikkei <.N225> was down 0.3 percent.

The euro was at $1.2795, just a touch above Thursday's low of around $1.2770, its weakest since September 2010. Against the yen, it stood at 98.73 yen, hovering near an 11-year low of 98.45 yen hit the previous session.

U.S. shares and the dollar rose while European shares and the euro sank on Thursday, reflecting diverging sentiment for the United States and the euro zone, as more data showed improvement in the U.S. economy while Europe remained mired in the debt crisis.

Euro area stresses remain elevated, said Standard Chartered in a research note. Poor economic data, sovereign downgrades and weak demand for government bond issues remain key threats to the region.

The dollar remained near one-year highs against a basket of major currencies, weighing on commodity currencies such as the Australian dollar and oil prices.

European shares and the euro are heavily undermined by deep-rooted concerns about a possible default by struggling countries such as Greece, expectations for credit downgrades of top-rated euro zone economies including France and worries over whether highly-indebted countries such as Italy and Spain could successfully refinance their maturing debts.

BANKS UNDER PRESSURE

European banks have come under strong market scrutiny as they strive to repair balance sheets hit by the plunging value of their huge euro zone debt holdings and beef up their capital amid tightening requirements.

Shares of Italy's top bank, Unicredit , plunged 17.3 percent on Thursday, adding to a 14.5 percent fall on Wednesday, when it announced a massive discount on a rights issue. It underscored the difficulty some European banks are facing to raise funds, and jitters that other banks may face similar problems unsettled the entire European banking sector.

A solid French government bond auction failed to relieve bearish sentiment as market players turned their eyes towards next week's debt sales by Spain and Italy, the two big economies seen as most at risk from the crisis that has already dragged down Greece, Ireland and Portugal.

France drew solid demand at its first debt auction of 2012 on Thursday, with yields rising only slightly despite fears for its AAA rating, raising 7.96 billion euros which was at the top of its projected range.

U.S. banks shares, in contrast, gained on Thursday on hopes for more growth in lending, after a measure of private-sector hiring surged in December and claims for unemployment benefits fell, suggesting the battered labour market may continue to strengthen in 2012.

Non-farm payrolls data due later on Friday will provide further clues to U.S. labour market conditions.

The pace of growth in the dominant U.S. services sector also

picked up slightly in December, according to the Institute for Supply Management.

Gold steadied on Friday after recouping all of last week's losses that briefly sent it into bear market territory as the plunging euro on Thursday whetted appetite for save-haven assets.

Asian credit markets remained cautious, with spreads on the iTraxx Asia ex-Japan investment grade index widening by a few basis points early on Friday.

(Editing by Alex Richardson)