Caution ahead of U.S. jobs numbers kept a lid on gains for stock markets on Friday after an optimistic start to the year that has added more than 7 percent to global company values.
Sentiment was underpinned by data that hinted the euro zone may yet avoid recession, boosting European shares, and that China has room to ease monetary policy.
The U.S. nonfarm payrolls report will be a key catalyst as strong data would fuel growing hopes the global economy is on a firm recovery path, while disappointing numbers could add to pressure on the U.S. Federal Reserve to stimulate the economy, supporting appetite for riskier assets.
A weak read will probably be interpreted as an indication that QE3 (a third round of quantitative easing) is needed to help the recovery, Cameron Peacock, market analyst at IG Markets, said.
Payrolls are forecast to rise by 150,000 after a 200,000 increase in December, with the unemployment rate seen static at 8.5 percent.
Tensions ahead of the data kept the dollar teetering near three-month lows versus the yen on Friday, trading at 76.19 yen and keeping alive the threat of official intervention from Tokyo to weaken the Japanese currency.
The pressure has really been on the dollar after the FOMC meeting, said John Hardy, currency strategist at Saxo Bank.
I think the will of the Japanese will be tested in coming days, but we're up against a hard wall with all the determination and the artillery the Japanese have.
Signs of life in a moribund euro zone came from a business survey showing the private sector economy snapped a four-month decline in January and expanded, albeit very weakly and roughly in line with earlier flash estimates.
Markit's Eurozone Composite Purchasing Managers Index (PMI) rose in January to 50.4 from 48.3 in December, above the 50 mark that denotes growth for the first time since August.
The FTSEurofirst 300 index <.FTEU3> of top European shares turned positive after the data, rising 0.2 percent.
The MSCI world equity index, which despite the euro zone debt crisis is up nearly 7.4 percent this year, was unchanged at 321.86.
But events in Greece, which is striving to seal a broader restructuring deal with its creditors by early next week, were likely to keep prices vulnerable intra-day.
The remaining risks that that process could still end up in a messy default that would have repercussions for banks and governments across Europe, supported demand for safe-haven government debt, with the German Bund future up 41 ticks higher at 139.49.
The focus is squarely on the U.S. employment report which is crucial for near-term sentiment not just for the U.S. but in other markets as well, Nick Stamenkovic, bond strategist, RIA Capital Markets, said
On top of that, investors (are) still awaiting news from the Greek PSI negotiations which seem to be dragging on.
GREEK DEADLINE LOOMS
Euro zone finance ministers aim to approve a key second financing package for Greece on Monday, including agreement on the size of voluntary losses private bondholders are willing to accept and new reforms Athens must undertake.
Finance Minister Evangelos Venizelos said on Thursday the European Central Bank needed to share the restructuring burden.
It could send Athens profits from Greek bonds it holds via a roundabout route that would provide aid while respecting a ban on the ECB financing governments direct, sources said.
Investors were also on watch for possible monetary easing in China after its Purchasing Managers Index for non-manufacturing sectors dipped to 52.9 in January from 56.0 in December and input price inflation eased.
With inflation on track to ease further, ...policymakers still have ample room for more ...easing measures to ensure a soft-landing, Qu Hongbin, chief economist for China and co-head of Asian economic research at HSBC, said.
The euro inched up to $1.3166, struggling to make much headway after the Chinese data.
Shares in commodities trader Glencore
They held on to the bulk of steep gains posted on Thursday on news the commodities trader is in talks to buy the mining group in all-share tie-up that could create a combined group worth more than 50 billion pounds ($79 billion), shaking up the industry with its biggest deal to date.
(Additional reporting by Brian Gorman, Neal Armstrong and Ana Nicolai da Costa; editing by Patrick Graham)