World stocks were mixed and the euro was flat on Friday, as an improved outlook on the U.S. economy was not enough to sustain risk appetite, keeping trading volatile across financial markets.
Government data showed U.S. inflation pressure waning, fanning expectations the Federal Reserve could do more to boost economic growth. The latest consumer price report followed data on Thursday suggesting a possible pick-up in job growth, which has been meagre during the current recovery.
Anxiety over potential ratings downgrades in European sovereign debt and their repercussion on the region's banks underpinned safety bids for U.S. and German government bonds.
Investor fears about the euro zone debt crisis have receded from the elevated levels seen earlier this week, but jitters persist as European leaders have not delivered more measures to contain the crisis after promising increased fiscal disciple at a summit in Brussels last week.
There remains a great deal of concern about the direction of the euro zone, said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. We're still not trading on fundamentals and haven't been for some time.
When you wake up and there isn't any bad news out of Europe, there's a general sense of being more comfortable with risk, said Barry Ritholtz, chief market strategist at Fusion IQ in New York.
The MSCI world equity index <.MIWD00000PUS> rose 0.23 percent after hitting a three-week low on Thursday. The index is still down 3.5 percent on the week and off 10.5 percent on the year.
At midday, the Dow Jones industrial average <.DJI> was down 36.33 points, or 0.31 percent, at 11,832.48. The Standard & Poor's 500 Index <.SPX> was up 1.14 points, or 0.09 percent, at 1,216.89. The Nasdaq Composite Index <.IXIC> was up 10.38 points, or 0.41 percent, at 2,551.39.
European stocks <.FTEU3> slipped 0.5 percent, erasing their earlier gains on selling tied to expiration of equity derivative contracts. They were on track to fall 2.9 percent on the week.
Tokyo's Nikkei <.N225> ended up 0.3 percent, reducing its weekly drop to 1.6 percent.
The euro has held in the $1.30 area versus the dollar after falling to 11-month lows on Wednesday. The 17-nation currency lost 2.5 percent against the greenback on the week.
Long-term borrowing costs for Italy and Spain, whose heavy debt loads have worried investors and rating agencies, fell early in the trading day. That helped to steady the euro and briefly boosted European shares on Friday.
But they gradually ratcheted back up to alarmingly high levels, with the yield on 10-year Italian government bonds creeping above 7 percent, which analysts deem unsustainable for the euro zone's third biggest economy to pay.
Italy faces a confidence vote in parliament, called to speed up approval of a 33 billion euro (27 billion pounds) austerity package aimed to restore investor confidence.
Amid these political developments, worries linger about the euro zone debt crisis and have supported U.S. Treasuries and German Bunds. They pushed aside optimism about the U.S. economy and hopes the European Central Bank will ultimately step in to buy bonds of troubled euro zone peripheral countries.
Bund futures were up 92 basis points at 138.64, ending at their highest level in four weeks. Benchmark 10-year Treasury notes were up 15/32 in price for a yield of 1.86 percent, revisiting their lowest levels in early October.
Gold, another traditional safety play, snapped a four-day losing streak tied to fund liquidation.
Spot bullion in London was last up 1.2 percent at $1,589.34 an ounce after touching the lowest level since late September on Thursday. For the week, gold is poised to fall 7 percent, the biggest weekly decline since late September.
The oil market struggled to hold early gains on nagging worries about a global economic slowdown. February Brent crude futures were down 47 cents at $103.13 a barrel, while spot U.S. oil futures were down 60 cents at $93.27, briefly falling below their 300-day moving average.