European shares rose on Friday and the euro hit fresh highs against the dollar as investors focused on bright spots in the global growth outlook, but unease about soaring oil prices and implementation of Greece's rescue deal tempered risk appetite.
A day after hitting a record high in euro terms, Brent crude jumped above $124, raising worries a run of sharp price gains could stymie the euro zone's growth prospects, making it harder for governments to meet budget targets and pull the currency bloc out of its debt crisis.
Brent has risen more than 11 percent so far this month, on worries over Iranian supply in particular, and reached a high of $124.28 on Friday.
There's still a risk premium to be built in oil prices because of Iran, said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.
Data on Friday confirmed that Germany's economy shrank by 0.2 percent in the fourth quarter on sagging exports and private consumption, but investors were optimistic that Europe's biggest economy will avoid falling into recession after a report on Thursday showed business sentiment was improving.
The euro hit it a 10-week high at $1.3393 on trading platform EBS, after rallying 1 percent on Thursday following the German business sentiment data.
Investors were also gearing up for a second three-year financing operation by the European Central Bank next week, which is expected to inject nearly half a trillion euros into banks and ease concerns about bank funding.
The pan-European FTSEurofirst 300 <.FTEU3> index of top shares was up 0.12 percent at 1,076.6 by 0906 GMT.
Banking stocks, however, pared early gains and Lloyds
RALLY RUNNING OUT OF STEAM?
U.S. stocks neared peaks on Thursday not seen since before the 2008 collapse of Lehman Brothers on signs the U.S. economy is gaining momentum after data showed the jobs market is on the mend.
Global stocks as measured by MSCI <.MIWD00000PUS> were up 0.3 percent after a positive session in Asia.
Investors globally, however, are still struggling to put aside concerns about Greece and worries over implementation of the Greek debt deal is dominating the market backdrop.
The speed and consistency of the rise in risk assets in recent months, which returned the S&P 500 to its 2011 peak, have led many to wonder if risk is due for a pause, Barclays Capital analysts said in a note.
German Bunds eased, but concerns about Greece threatened to spark a further rally in safe-haven government bonds, analysts said.
Ahead of the weekend with implementation risk in Greece still running at elevated levels and Italian and Spanish bond supply to be digested and settled after the 3-year European Central Bank financing operation next week, we expect the Bund future to rally to 140, Commerzbank strategist David Schnautz said.
YEN, STERLING PRESSURED
Sterling fell to a 2-1/2 month low against the euro and British gilt futures hit a one-week high after Bank of England policymaker Paul Fisher said the outlook for the British economy was still incredibly uncertain and that he was keeping an open mind as to whether more quantitative easing would be required.
The pound edged down slightly further following fourth quarter UK growth data.
The dollar rose to a fresh 7-1/2-month peak against the yen as the Japanese currency stayed under pressure from the Bank of Japan's easing earlier this month. The dollar has rallied 5 percent against the yen this month helped by Japan's monetary easing and the country's shrinking currency account surplus.
The Australian dollar was boosted by an upbeat outlook from Reserve Bank of Australia Governor Glenn Stevens, which dampened expectations for further interest rate cuts. The Aussie rose to as high as $1.0756 on Steven's comments. By 0846 GMT it was trading at $1.0721.
Gold prices dipped, ending four days of gains and coming off a three-month peak, as the dollar rose. A stronger dollar makes commodities priced in dollars more expensive for holders of other currencies. Spot gold slipped 0.3 percent to $1,775.14 an ounce.
Copper, one of the best performing commodities since the start of the year having rallied 10 percent, erased early gains but was still set for its best weekly showing in a month.
Investors are turning cautious though as the euro zone economy looks to be heading back into recession and manufacturing activity in top copper user China continues to shrink.
Three-month copper slipped half a percent to $8,350 a tonne on the London Metal Exchange.
(Additional reporting by Richard Hubbard; Editing by John Stonestreet)