(Reuters) - World stocks rose 0.5 percent on Friday and looked set for their biggest weekly gain in three years after central bank moves to cut funding costs for banks, but momentum slowed ahead of U.S. jobs data and a summit that could decide the euro zone's future.
U.S. markets were also poised to open stronger after ending the previous session in slightly negative territory.
Signs that leaders of France and Germany are working hard to reach a compromise deal ahead of the December 9 summit, viewed as make-or-break for the 12-year old single currency bloc, kept the euro firm versus the dollar and encouraged investors to push equity markets higher.
German Chancellor Angela Merkel vowed in a speech to defend the euro, though she warned the euro zone debt crisis would take years to resolve.
Sentiment has also been buoyed by data showing an uptick in the U.S. economy, the world's largest, and jobs figures due later are broadly expected to confirm the tentative recovery.
World stocks on the MSCI all-country index .MIWD00000PUS were up half a percent, just off two week highs. The index is up 8.5 percent this week, continuing to benefit from Wednesday's concerted move by major central banks to provide cheaper dollar funding for starved European lenders.
That is the biggest weekly rise since November 2008, just after the onset of the 2008 financial crisis.
European shares are set for a similar record. The FTSEurofirst 300 .FTEU3 index of top European shares was up 1.4 percent at 988.83 points and is up 9 percent this week.
Focus has partly shifted to U.S. non-farm payrolls -- a key gauge of the country's economic health -- and traders said investors were reluctant to take big bets before the numbers are released. The data, due 1330 GMT, is expected to show an increase of 122,000 jobs, according to a Reuters poll.
Johan Javeus, chief strategist at SEB in Stockholm, predicted the data would confirm the U.S. economy is faring better than it was in the first half of the year.
I don't think markets are looking for a payrolls number that will say the U.S. is on a very strong recovery trajectory, it's rather a number that should confirm what we've seen in other data, that things are not as bad as people thought a few months ago, he said.
Data on Thursday showed U.S. manufacturing activity rose to its highest in five months, while consumer spending and private-sector job creation have also been stronger.
Javeus of SEB said he did not expect a huge reaction from markets if the jobs data meets expectations.
In the end, focus is on what could happen with the political process in Europe and that will take precedent.
U.S. stock index futures pointed to a sharply higher open for equities on Wall Street on Friday, with futures for the S&P 500, for the Dow Jones and for the Nasdaq 100 up 1 to 1.1 percent.
New York's S&P 500 index M.SPX> has seen its best week in 2-1/2 years, with gains of over 7 percent so far.
EURO STRUGGLES TO MAKE HEADWAY
European policymakers' apparent efforts to reach a permanent solution to the festering sovereign debt crisis has benefited the euro along with the earlier central bank action that boosted liquidity in money markets.
The latter pushed dollar LIBOR rates down for the first time in more than four months. London interbank offered rates for three-month dollars fell to 0.52722 percent on Thursday from 0.52889 percent, its first decline since July.
The euro meanwhile has gained 1 percent against the dollar this week but is now struggling to extend those gains. It was flat on the day at $1.3480 with its fate seen as dependent on the December 9 summit.
The European Central Bank hinted on Thursday it was ready to move more aggressively to tackle the crisis if politicians agree on much tighter budget controls in the euro zone, although it stopped short of detailing what exact measures it would take.
There is the possibility of disappointment but it does seem that there's a deeper understanding of the severity of the problems by the politicians, said Elisabeth Afseth, a rate strategist at Evolution Securities.
The improvement in market sentiment also supported peripheral euro zone debt, with Italian and Spanish yields falling by 16 bps and 40 bps respectively. Yield spreads against German Bunds also narrowed.
Lower risk Bunds eased, with December futures 10 ticks lower at 134.78 and benchmark 10-year yields rising slightly to 2.15 percent. U.S. Treasuries fell, with 10-year yields rising 2.3 basis points to around 2.11 percent, staying above the 1-1/2 month low of 1.89 percent hit last week.
U.S. recovery hopes pushed Brent crude futures towards $110 a barrel though markets were on edge ahead of the U.S. data and the euro summit.
The (oil) market wants to move higher, but is reluctant to, unless it sees a clear resolution to the euro zone crisis, said Victor Say, analyst at Informa Global Markets in Singapore