Asian shares rose and the euro steadied on Friday after a flood of cheap European Central Bank funds this week eased fears of a meltdown in the euro zone financial sector, overriding some weak data and concerns about surging oil prices.
The ECB's half a trillion euros in cheap, 3-year loans added to the banking system this week underpinned markets, driving down bond yields of highly-indebted euro zone governments, such as Italy, on Thursday.
Central banks around the world keeping the global financial system awash with funds is prompting investors to keep the recent risk-on momentum, said Tetsuro Ii, the president of Commons Asset Management in Tokyo.
Investors are shifting their focus to fundamentals and looking for value relative to growth prospects. In this light, the surge in oil prices may dampen sentiment due to worries about the conflict in the Middle East and the adverse effect from higher oil prices on the economy.
The MSCI Asia Pacific ex-Japan gained 0.5 percent, but stayed below a seven-month high touched on Wednesday. The index was set to add nearly 1 percent for the week. Japan's Nikkei rose 0.7 percent.
Shanghai stocks rose more than 1 percent on news that the Chinese big four state-backed banks will lend more to qualified property developers to boost entry level housing supply, a sign China may relax property controls.
Financial spreadbetters expected major European markets to open 0.2-0.5 percent higher.
The euro held steady around $1.3300 (84 pence) after briefly falling below that level to approach a one-week low of $1.3282 hit on Thursday.
Analysts said the ECB's refinancing operations amounted to a form of quantitative easing, which makes it attractive to use the euro as a funding currency to buy higher yielding assets.
OIL MAY WEIGH
Oil eased on Friday after surging the previous day on an Iranian report of a pipeline fire in top exporter Saudi Arabia, and news that Israel would test-fire a ballistic interceptor missile, escalating Middle East tensions already high due to tough sanctions against Iran.
Crude prices fell after CNBC cited a Saudi oil official as saying a report about a Saudi Arabia pipeline fire was untrue.
Brent crude fell 0.4 percent at $125.71 (78.95 pounds) a barrel, after jumping as much as 5 percent on Thursday to hit a high of $128.40, the loftiest since July 2008. U.S. crude eased 0.2 percent to $108.61 a barrel, after touching $110.55, its highest since May 2011, the day before.
I'm curious to know, how will the market react to signs that high oil prices are starting to shave a little bit of that feel-good factor and shave a little bit of that global growth momentum that we've seen in the past few months, said Olivier Desbarres, head of Asia-Pacific FX strategy for Barclays Capital in Singapore.
The reaction of markets to mixed signs about global factory activity from data on Thursday was muted.
The market is well-positioned to move up now with concerns about Europe likely to be on the back burner for now and U.S. data improving, said Ric Spooner, a strategist at CMC Markets.
Jean-Claude Juncker, president of the Eurogroup of euro zone finance ministers, said on Thursday that Greece had taken all the legal action needed to secure a second bailout, opening the door to the first tranche to be paid out by March 20 if more conditions are met.
On the data front, U.S. manufacturing unexpectedly cooled in February and consumer spending was flat in January for a third straight month after accounting for inflation, casting doubts on the strength of the recovery.
But new U.S. claims for jobless benefits last week hovered near four-year lows and retailers and automakers enjoying brisker February sales.
Unemployment in the 17-nation euro zone hit a euro-era record 10.7 percent in January, data out on Thursday showed, and the euro zone's manufacturing sector contracted for the seventh month running in February.
The probability of a sharp global slowdown has eased due to recent policy measures adopted in the euro zone to tackle its debt crisis, the International Monetary Fund said on Thursday, but it warned risks to world growth remain squarely to the downside.
Sentiment in Asian credit markets improved, narrowing the he spreads on the iTraxx Asia ex-Japan investment-grade index by 6 basis points.
(Additional reporting by Narayanan Somasundaram in Sydney and Masayuki Kitano in Singapore)