World stocks hovered just off two-week highs on Friday and the dollar clung to recent gains ahead of U.S. jobs data that is widely expected to show recovery is gathering pace in the world's largest economy.
Analysts expect the data, due at 1230 GMT, to show the highest U.S. jobs growth last month since 1983, adding to other upbeat economic reports this week.
A Reuters poll forecast U.S. payrolls data will show 513,000 jobs were created in May, the fifth straight month of gains. Some expect an ever bigger number, allowing markets to continue their week-long rally.
MSCI world stocks were 0.12 percent up by 0815 GMT, just off the two-week highs hit in the previous session. They have gained one percent so far this week after May saw a 9 percent fall, fueled by escalating euro zone worries.
European stocks rose 0.7 percent to a new two-week high. Energy stocks jumped, led by a 4 percent rebound in BP which said it had made some progress in capturing oil gushing from its ruptured deep sea well.
Over the past week, global equity markets and U.S. Treasury yields have recovered nearly a quarter of the losses incurred over the previous two months when the European sovereign debt crisis triggered a scramble out of risk.
But analysts note that over two-thirds of the new jobs are likely to be temporary hires for the U.S. government census. And worries over euro zone growth and banks continue to overhang the market, acting as a check on gains.
If the payrolls figure is good, it'll support stocks on both sides of the Atlantic. But this could be short-lived in Europe, where stimulus plans have not been enough to kick-start growth, said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris.
DOLLAR REMAINS IN Favor
The dollar had hit a four-year high against the euro on Tuesday and stayed close to that level. The euro has lost 17 percent from early 2010 highs and at 0830 GMT it was trading with small gains against the dollar at $1.2200.
Fears about tougher funding conditions in Europe and the impact of spartan fiscal policy on growth may keep a lid on the nascent revival in risk taking and keep investors favoring the greenback and U.S. Treasuries.
Markets were spooked on Thursday by comments from a leader of Hungary's new ruling party who said the country's finances were in much worse shape than previously expected, prompting a 2.5 percent slide in the forint currency.
The dollar continues to attract safe-haven buying on the back of continued concern in the euro zone about sovereign debt and credit market liquidity, with European banks remaining extremely nervous with respect to their lending between each other, said Michael Hewson, analyst at CMC markets.
Reinforcing this are signs Chinese exporters are increasingly demanding payment in dollars..
The dollar also rose against the yen, touching a two-week high at 92.87 yen. Speculation that Japan's next prime minister will be more hawkish against yen strength has spurred traders to cut their bets on the yen this week.
But prospect of a leader who may keep the yen weak was seen as a plus for exporters, helping Tokyo's Nikkei share average
post its biggest single-day rise in six months on Thursday. It finished 0.1 percent down on Friday.
Oil prices slipped off three-week highs as investors remained doubtful that rising U.S. demand and falling stockpiles will be enough to counteract the European debt crisis.
(Additional reporting by Neal Armstrong in London and Blaise Robinson in Paris, editing by Mike Peacock)