European shares rose on Friday as investors welcomed positive signals from the U.S. economy but the euro retreated from two-month highs against the dollar as its recent rally looked fragile on lingering doubts about the euro zone recovery, according to Reuters. European stocks tracked gains in Asia after first-time U.S. jobless claims dropped to their lowest level in two months and a handful of retailers reported solid sales. The pan-European FTSEurofirst 300 index of leading shares was up 0.4 percent by 1045 GMT, adding to gains of 5 percent over the past three days. It was on track for its biggest weekly gain in a year, but is still down 8.5 percent from a mid-April peak, on worries about debt levels in Europe and the global economic recovery. World stocks as measured by MSCI added 0.3 percent, supported by the gains in Europe and Asia. "After periods of declining equity markets, we now have a bit of relief rally, but it's not something which I would expect to last," said Klaus Wiener, head of research at Generali Investments. "We still have a lot of political uncertainties. Will the European Union be able to reform itself and will the governments stick to the consolidation efforts? There is also a lot of anxiety in the market regarding the strength of the economy." Fears that recovery from the world's worst downturn in decades could stall had triggered outflows of more than $11 billion from equity funds worldwide in the first week of July and induced the biggest inflows in 18 months for safe haven money market funds, fund tracker EPFR Global said. DIFFERENT WATERS NEXT WEEK "The bounce in risk has been primarily led by short-covering ...There're still a lot of challenges. We'll move into different waters next week when U.S. earnings are released and we start getting forecasts for the four quarter," said Kenneth Broux, financial markets analyst at Lloyds TSB in London. The euro slipped off two-month highs against the dollar as investors booked profits before the weekend and strategists said its recent rally would wane on lingering worries over the euro zone's recovery. It was trading down about 0.2 percent on the day at $1.2674 by 1118 GMT, after rising to a 2-1/2-month high of $1.2723. Options with a strike price of $1.2650 set to expire later on Friday were seen supporting the euro, traders said, after it fell to the day's low of $1.2661. The single currency got a lift late on Thursday following ECB President Jean-Claude Trichet's comments that the euro area economy performed much better in the second quarter although he said it would still grow "at a moderate and still uneven pace in an environment of high uncertainty". The rally in riskier assets such as equities eroded demand for safe-haven government bonds, with German Bund prices extending falls from the previous session. The 10-year German Bund yield, which moves inversely to price, was last up three basis points at 2.657 percent while the U.S. 10-year T-note yield rose one basis point to 3.050 percent. Oil rose towards $76 a barrel, heading for its biggest weekly gain since May, after falling U.S. inventories and the positive economic data helped the pickup in risk appetite and sentiment across markets. U.S. crude for August rose 30 cents to $75.73 a barrel by 1135 GMT, after touching an intraday peak of $76 on Thursday, the highest price this month.
