Global stocks rose to seven week highs on Friday led by bank shares after talks on U.S. banking reform collapsed, while speculation the Bank of Japan may soon ease monetary policy weighed on the yen.
Oil held its ground above $82 a barrel, poised for a second consecutive weekly increase on views that energy demand would continue to grow and further helped by a generally softer dollar, which also supported gold prices.
The pan-European FTSEurofirst 300 index of top shares <.FTEU3> edged up 0.3 percent, with banks among the biggest sector gainers.
Chances of a broad overhaul of U.S. financial regulation dimmed on Thursday after bipartisan Senate talks collapsed, jeopardizing a top Obama administration priority.
We'll see a very controlled rally today which is brought on by our rather lackluster performance yesterday and (equities in) New York being relatively positive, said David Buik, senior partner at BGC Partners.
MSCI's world stock index <.MIWD00000PUS> rose 0.3 percent to highs last seen on January 21, while emerging markets equities <.MSCIEF> gained 0.4 percent. Japan's Nikkei advanced 0.8 percent with exporters helped by a weaker yen.
Global stocks have been pushing higher since early February, helped by recent improving sentiment around Greece's debt woes, hopes for economic recovery and robust fund flows. Most major equity indexes are now in positive territory for the year.
Still, Greece's fiscal crisis has been a drag on some fund groups, said fund tracker EPFR Global, noting Europe Equity Funds posted outflows of $502 million for the week ended March 10, the seventh weekly outflows in eight weeks.
In contrast, investors plowed record amounts of cash into emerging market and high yield bond funds that week.
Mounting expectations the BoJ will ease monetary policy next week weighed on the yen, which fell broadly.
The euro scaled a two-week peak of 124.30 yen, while the dollar hovered near a two-week high of around 90.82 yen set on Wednesday.
Japan's prime minister said the government and the BoJ should work together to beat deflation as he fended off mounting political pressure for action on the economy and the yen.
Yet more speculation that the BOJ could further relax monetary policy to stimulate the economy may put the yen on the defensive today, said Stuart Bennett, currency analyst at Credit Agricole CIB.
Commodity currencies such as the Australian dollar were stronger against the dollar, but analysts at BNP Paribas urged caution due to the prospect of China taking further policy tightening measures.
There is also some speculation that the Chinese monetary authorities could take further action today given that bank reserve requirement ratio increases were announced on the 12 January and 12 February, they said in a note.
With stocks holding firm, major government bond prices mostly fell, driving yields higher. The U.S. 10-year yield edged up 0.6 basis points to 3.73 percent, while the equivalent German Bund yield gained 1.6 bps to 3.192 percent.
U.S. crude rose 0.3 percent to $82.36 a barrel while copper drifted 0.2 percent higher to $7,480.00 a tonne.
Spot gold was at $1,114.90 an ounce, up about $5 from New York's notional close on Thursday, when it hit a low of around $1,100, its weakest since January 25.
(Additional reporting by Harpreet Bhal and Tamawa Desai)