Asian shares edged higher on Friday while the dollar took a breather as its recent broad rally spurred some profit taking, with a fresh batch of encouraging U.S. economic data further underpinning investor sentiment.
The MSCI Asia Pacific ex-Japan index <.MIAPJ0000PUS> was up 0.1 percent, for a weekly gain of nearly 1 percent. The index has risen 13.7 percent so far this year, recovering three-quarters of an 18 percent loss posted last year.
Japan's Nikkei <.N225> steadied and held near an 8-month high reached on Thursday. The benchmark is up nearly 20 percent this year, reclaiming all of last year's 17 percent drop. <.T>
Analysts say the rebound is being driven mostly by investors buying back assets which they sold heavily last year when concerns were intensifying over the euro zone's debt crisis spinning out of control and hurting global growth.
The market is still going through a relief rally more than chasing a new trend on global growth, Barclays Capital analysts said.
We are getting into profit-taking territory, they added.
Sentiment has improved since then on signs of stronger U.S. growth, after Greece secured a second international bailout fund and as capital conditions improved at big U.S. banks. Fears of another global financial crisis also have eased substantially as central banks took aggressive measures to flood the system with ample cash.
The Standard & Poor's 500 index <.SPX> on Thursday closed above 1,400 for the first time since June 2008, having risen about 11.5 percent this year without a major pullback. Some analysts have called for a consolidation while others see ongoing momentum.
European shares have also nearly recovered last year's declines.
U.S. jobless benefits claims fell to a four-year low last week, while the New York Federal Reserve's Empire State general business conditions index hit its highest since June 2010 last month. The Philadelphia Federal Reserve Bank's business activity index also showed manufacturing kept growing in the region this month.
With the dollar taking a pause, the euro's rebound helped gold extend gains on Friday, but bullion was set for a third straight week of losses as investors shifted to riskier assets.
There's little need for a safe haven at the moment, said Lynette Tan, an analyst with Phillip Futures in Singapore.
Spot gold was up 0.3 percent to $1,662 an ounce, while copper edged up 0.1 percent to $8,570 a tonne.
U.S. jobless claims: http://link.reuters.com/hug27s
U.S. strategic oil reserve: http://link.reuters.com/cak86s
S&P 500 vs 10-yr Treasury: http://link.reuters.com/cak86s
YIELD DRIVES DOLLAR
The dollar dipped 0.2 percent to 83.40 yen, retreating from a 11-month high of 84.187 touched on Thursday. The U.S. currency steadied against the euro at $1.3084, easing from Thursday's one-month high of $1.3004.
The dollar's strength is closely linked to the rise in U.S. Treasury yields, where views are mixed about the outlook.
The dollar's upside depends on whether U.S. yields will keep rising, and that in turn will determine how long a risk-on momentum will last, said Tohru Sasaki, head of Japan rates and FX research at JPMorgan Chase Bank in Tokyo.
U.S. Treasuries stabilized on Thursday after the worst selloff in four months, with the 10-year yield falling to 2.28 percent from a high of 2.35 percent reached earlier in the week, the highest since late October.
Positive economic data scaled back expectations for the need for more monetary easing by the Federal Reserve, putting upward pressures on U.S. yields.
Since U.S. yields broke recent ranges, what had served as a ceiling may become a floor, but U.S. yields aren't likely to keep rising just yet, said a manager at a Japanese insurance firm, adding that 10-year Treasury yield could top at around 2.4-2.5 percent.
The U.S. economy is growing again but faces tough challenges that call for action to create jobs and foster expansion, U.S. Treasury Secretary Timothy Geithner said on Thursday.
Oil rebounded after a sharp decline on Thursday when Reuters, citing two British sources, reported that Britain had decided to cooperate with the United States in an agreement to release oil from government-controlled strategic reserves.
U.S. crude was up 0.4 percent to $105.50 a barrel on Friday, after falling to a session low of $103.78 on Thursday. Brent crude was up 0.4 percent above $123 a barrel.
Asian credit markets firmed strongly on Friday, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 7 basis points.
(Additional reporting by Lewa Pardomuan; Editing by Kim Coghill)