Asian shares crept higher on Friday as solid U.S. data improved sentiment, but gains may be limited by concerns that rising oil prices could deal a further blow to the fragile euro zone economy and moves to take profits after recent rallies.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> was up 0.4 percent, with the growth-sensitive technology sector <.MIAPJIT00PUS> among best performers. The broad pan-Asia index was set to end the week nearly flat.
Financial spreadbetters expected major European markets <.FTSE> <.FCHI> <.GDAXI> to open up 0.3 to 0.6 percent. <.L><.EU>
Japan's Nikkei average <.N225> hit a 6-1/2-month high above 9,600 on Friday and was up 0.4 percent. <.T>
Oil extended gains on heightening concerns about escalating tension between Iran and the West and risks of oil supply disruptions.
While the euro area crisis and high oil prices remain a worry, a better growth backdrop and risk premia that do not appear stretched lead us to look for an environment where global asset markets perform solidly, Barclays Capital analysts said.
U.S. stocks neared peaks not seen since before the 2008 collapse of Lehman Brothers on Thursday, after data underscored a recovery in the battered labour and housing markets.
The German Ifo survey of business climate sentiment in February was at its strongest in seven months, but the European Commission said economic output in the euro zone would contract 0.3 percent this year, with virtually no growth in the wider European Union.
The release of European Commission forecasts were a reminder that the euro zone economy is weak and that a considerable debt-payback headwind lies ahead, ANZ Bank said.
The euro rose to its highest in 2-½ months against the U.S. dollar at $1.3380 on Friday.
A surge in oil prices pushed Brent crude priced in euros to a record high on Thursday, adding to worries that rising fuel costs would damage growth and further undermine euro zone debt restructuring efforts.
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.
Dollar-denominated Brent extended gains on Friday, rising above $124 a barrel for a fifth straight weekly gain, still well short of 2008's record $147 a barrel, after settling on Thursday the highest front-month settlement since May 2011.
U.S. crude rose for a seventh day, its longest winning streak since a 10-day gain in December 2009, rising 74 cents to $108.57 a barrel.
Brent futures valued in euros hit a record 93.60 euros per barrel on Thursday, exceeding the previous peak of 93.46 euros hit on July 3, 2008.
Iran remained defiant after U.N. nuclear inspectors failed to check activities at a site where the International Energy Agency said there is a facility to test explosives, sparking fears Iran's confrontation with the West would escalate and affect oil flow from the Middle East.
Higher oil prices raise inflation expectations in the United States, lowering real interest rates and undermining the dollar, said Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo.
There is a fairly strong correlation between oil price and U.S. inflation expectations. The dollar has been rather resilient during the recent 'risk-on' mode, lifting dollar/yen above our forecast, but this strength may see a correction if oil prices and inflation expectations stay elevated, he said.
The dollar touched a 7-1/2-month high against the yen at 80.46 yen, supported by Japanese importers' bids, which also underpinned the euro against the yen at 107.40 yen up 0.4 percent.
Copper erased earlier gains to stand down 0.2 percent at $8,373.50 a tonne and gold was off three-month highs but steady near $1,780 an ounce.
With equities firming, sentiment in Asian credit markets also improved, narrowing spreads on the iTraxx Asia ex-Japan investment-grade index by a couple of basis points.
(Additional reporting by Florence Tan in Singapore; Editing by Alex Richardson)