(Reuters) - World stocks hit a 6-1/2 month peak on Friday and the euro bounced higher from a three-week low against the dollar as hopes Greece will seal a long-awaited bailout deal next week fuelled risk appetite.
A strong sentiment boost from Thursday's upbeat U.S. jobs and factory activity data carried over into European trade, with U.S. stock futures pointing to a firmer open on Wall Street and pushing the dollar to a 3-1/2 month high against the yen.
German government bonds fell while Italian and Spanish sovereign debt yields dropped as investors anticipate Greece moving closer to averting a disorderly default.
The country expects to get approval on Monday from euro zone finance ministers to begin a debt swap with private bondholders, a spokesman for the Greek government said. But analysts said problems remain.
I think we'll get this Greek deal and the euro will edge higher. But Greece is clearly not out of the woods and its problems will be revisited many times in coming months, said Paul Robson, currency strategist at RBS.
The MSCI world equity index .MIWD00000PUS rose 0.7 percent to its highest since August, while European stocks .FTEU3 were up 0.7 percent, hitting a 6-1/2 month high.
Emerging stocks .MSCIEF added 1.2 percent, having risen more than 15 percent since the start of 2012.
U.S. stock futures rose 0.2 percent. The S&P 500 index .SPX jumped to a new nine-month peak on Thursday after U.S. labor, manufacturing and housing data suggested the recovery continued at a steady pace.
Generally investors are only trading for the short-term, Mark Foulds, head of equity sales at ETX Capital, said.
They are being attracted by the more volatile sectors such as the banks which will do well if there is a second Greece bailout, although this could shift to the more defensive sectors if it does not happen.
The euro rose 0.2 percent to $1.3165, bouncing from the three-week trough of around $1.2973 hit on Thursday. The dollar rose as high as 79.21 yen, but lost 0.1 percent against a basket of major currencies .DXY.
The yen has been under pressure after the Bank of Japan boosted asset purchases and set an inflation goal of 1 percent on Tuesday, in a more aggressive monetary policy to pull the ailing economy out of deflation.
AWAITING GREECE BAILOUT
Italian 10-year government bond yields fell 11 basis points at one point to 5.60 percent, tightening the spread over German Bunds to 369 bps. Equivalent Spanish yields fell 8 bps to 5.28 percent.
Bund futures fell 36 ticks.
Euro zone officials said on Thursday they were putting the finishing touches to Greece's bailout for approval on Monday, which means Athens would finally be able to proceed with a bond swap with private creditors aiming to cut its debts by 100 billion euros.
The bailout money will be disbursed only after the debt restructuring takes place. Jitters remain due to the tight schedule, with Greece needing to secure the funds before March 20, when it needs to pay back debt worth 14.5 billion euros.
Brent crude oil was steady trading at around $120 per barrel, having risen nearly 8.5 percent so far this month, supported by supply concerns as European buyers sought alternatives to sanctions-hit Iranian oil.