The dollar was on the defensive and Japanese stocks fell after weak U.S. jobless claims figures heightened worries that Friday's payroll data could paint a bleak picture of the U.S. economic recovery.
Data overnight showed new U.S. claims for unemployment benefits unexpectedly rose last week to the highest level since early April, pushing stocks on Wall Street lower.
Growing worries about employment conditions in the United States are keeping investors on the sidelines ahead of the jobs data, in addition to concerns about U.S. consumer spending, said Fumiyuki Nakanishi, manager at SMBC Friend Securities.
European stock market futures pointed to a higher open, however, as investors hoped that job creation in the U.S. private sector would be stronger than expected, which in turn could boost consumer spending.
In commodities markets, U.S. wheat futures jumped more than 6 percent, taking weekly gains to around 25 percent as Russia's move to temporarily halt grain shipments sparked a buying frenzy.
Japan's Nikkei share average <.N225> pared early losses to end down 0.1 percent as traders closed positions ahead of the weekend and the U.S. data, but the benchmark ended the week slightly higher, supported by solid earnings from companies including Toyota Corp <7203.T>.
So far this year the Nikkei is down nearly 9 percent, hurt by worries that the global recovery is running out of steam and by a stronger yen, which is inching toward a 15-year high against the dollar.
With overall trading volume remaining thin and the yen's rise slamming exporters, realized or historical volatility on the Nikkei has jumped compared with other Asian markets.
The MSCI index of Asian stocks outside of Japan shrugged off early weakness to rise 0.4 percent and looked set to gain a little over 2 percent on the week, though it is barely in positive territory for the year to date.
According to a Reuters poll, the U.S. Labor Department is expected to report (at 8:30 a.m. EDT) that nonfarm payrolls fell 65,000 last month after declining 125,000 in June, as temporary workers hired to conduct the decennial census were let go.
Private sector payrolls are seen rising a modest 90,000 and the unemployment rate is expected to climb to 9.6 percent from 9.5 percent in June.
The dollar index <.DXY> stood at 80.81, easing slightly from late U.S. trade and near its Tuesday low of 80.469, its lowest since mid-April.
Its 14-day relative strength index is below 30, indicating a heavily oversold position. With the mood already so bearish, some traders believe a result anywhere close to forecasts would likely be a relief and could see the dollar rally.
Against the Japanese currency, the dollar traded at 86.13 yen, still close its November low of 84.82 yen, a break of which would take it to a 15-year low.
Further yen gains could stir more talk of yen-selling intervention by Japanese authorities, though most market players think Tokyo is unlikely to pull the trigger at this time.
The market is focusing on the outlook for the U.S. economy. If the dollar breaks below the November low, it could enter a whole new world, said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Morgan Stanley Securities.
Japanese government bonds gave up early gains in jittery trade ahead of the U.S. data. The benchmark 10-year yield fell below 1 percent earlier in the week.
Gold edged up 0.2 percent to $1,197 an ounce and was on track for its biggest weekly gain since late June as the dollar remained mired near multi-week lows, while crude oil futures rose 30 cents to $82.30 a barrel.
But the clear commodities story of the day was wheat. Chicago Board of Trade front-month wheat futures have nearly doubled since June 9 as the worst drought on record in Russia, the world's third-largest exporter, destroyed crops.
(Additional reporting by Hideyuki Sano in TOKYO; Editing by Kim Coghill)