World shares advanced towards their highest level in a month on Friday, although investor wariness over rising prospects of a near-term Federal Reserve rate hike subdued activity as traders awaited US jobs data later in the day.

European shares followed Asia higher, with the STOXX Europe 600 up 0.5 per cent, boosted by a rebound in commodity-related shares as oil and copper prices both rallied.

World equity index

The MSCI world equity index, which tracks shares in 45 countries, rose 0.2 per cent to its highest level since the last day of May. A close at these levels would be its highest close since May 2.

Markets expect US employment data due at 1230 GMT to show a non-farm payroll increase of about 164,000 and 0.2 per cent rise in average wage earnings in May.

Yellen’s speech

The data will be followed by a speech from Federal Reserve Chair Janet Yellen on Monday, the last chance for the Fed to communicate with markets before it begins a blackout period ahead of its policy meeting on June 14-15.

“Markets are mainly in a wait and see mode ahead of the US jobs data, with the importance of the report rising more than usual this time as the Fed has indicated that it is considering a rate hike sooner rather than later,” Philippe Gijsels, head of research at BNP Paribas Fortis, said.

“A jobs figure outside the consensus has the potential to move stock markets quite violently.”

Fed rate hike

Currently US money market futures are pricing in only about 20 per cent chance of a hike in June and 60 per cent by July.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.5 per cent, setting it up for a rise of 0.4 per cent for the week. Japan’s Nikkei closed up 0.5 per cent, paring losses for the week to 1.1 per cent.

Chinese shares recovered from a lacklustre start, with the CSI 300 index trading up 0.7 per cent and the Shanghai Composite climbing 0.4 per cent, putting both on track for weekly gains of more than 4 per cent.

In recent weeks global markets have been puzzling over what the Fed will do in the near term as relatively upbeat US data have been eclipsed by a still-sluggish global economy and worries over the risk of Britain exiting the European Union.

“Non-farms remain crucial but the Fed look confident that the labour market and current growth is strong enough to withstand a rate hike, nonetheless we will likely see a swing in the US dollar if figures miss significantly,” Ana Thaker, Market Economist at PhillipCapital UK, said in a note.

“The Fed have been sending a hawkish message to markets for months... however, recently we have seen a change in market positioning with some doubts looking to creep in.”

Dollar index

The dollar index, which tracks the greenback against a basket of six major peers, edged down 0.1 per cent to 95.509.

The euro was little changed at $1.1146 on Friday, after sliding from this week's high of $1.1219 touched early on Thursday.

Against the yen, it last stood at 121.26 after falling to a three-year low of 121.01 yen in the previous session, with investors left underwhelmed by a European Central Bank meeting on Thursday.

ECB monetary policy

The ECB held monetary policy steady, and only nudged up its growth and inflation forecasts fractionally.

The yen rose to 108.790 per dollar, after hitting a two-week high of 108.5 earlier in the session, a move some market players attributed to disappointment over a lack of a clear plan on stimulus from Japanese Prime Minister Shinzo Abe. It is poised for a gain of 1.6 per cent for the week.

The yen tends to strengthen when there is bad news on the economy because it is often used as a funding currency for investment in higher-yielding riskier assets.

Crude oil

Oil prices were supported, with international benchmark Brent futures continuing to trade above the $50 a barrel level, near seven month highs, after the latest drawdown in US crude stockpiles offset OPEC’s failure to set a ceiling for its output.

Brent was up 0.2 per cent at $50.14, headed for a rise of 1.7 per cent for the week. It has rallied for four consecutive weeks, and is up 10.5 per cent in that time.

US West Texas Intermediate (WTI) crude futures were up 0.1 per cent at $49.23 a barrel. It had tumbled more than $1 earlier in the week, and was flat for the week as a whole.

OPEC output strategy

OPEC failed to agree on a clear oil-output strategy on Thursday as Iran insisted on steeply raising its own production, although Saudi Arabia's new oil minister promised not to flood the market and sought to mend fences within the organisation.

Copper rose 1 per cent, bouncing back from falls this week. That helped the STOXX Europe basic resources sector up 1.3 per cent. Oil and gas shares rose 1.2 per cent.

Gold loses shine

Gold is headed for its fifth consecutive weekly decline, weighed down by the uptick in risk appetite and shift of investments to equities.

Spot gold was little changed at 1,211.80 an ounce, around flat for the week.

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