The euro rose to its highest level since April against the dollar on Friday in the wake of encouraging remarks from the head of the European Central Bank, while an improving economic outlook held world stock prices near a 20-month high.
A massive stimulus plan in Japan also boosted optimism about future business activity, but worries about global demand, a pickup in Chinese inflation and a possible drag from the debt ceiling fight in Washington spurred selling in the oil market.
As stocks and the euro gained appeal, investors trimmed back their safe-haven holdings of US and German government debt before a late wave of buying emerged.
"The world economy seems to be in the beginning of a cyclical upturn. That's going to benefit economic sensitive sectors," said David Joy, chief market strategist at Columbia Management Advisors in Boston.
While Japan aims to jumpstart its economy, US and European central bankers have talked up their economies' prospects over the past 24 hours.
Philadelphia Federal Reserve Charles Plosser on Friday repeated his outlook that the US economy will likely grow about 3% in 2013, bringing the jobless rate down to 7% by year-end. Plosser's remarks followed mildly upbeat comments from St. Louis Fed chief James Bullard on Thursday.
Comments by ECB President Mario Draghi following the central bank's policy meeting on Thursday, suggesting Europe's economy is set for a recovery in 2013, have raised bets that global growth might gather momentum this year.
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The MSCI index of world stocks ended steady at 350.00, a tad below its session high of 350.15, which was its highest level since May 2011. It rose 0.67% for the week, following a 3.11% rise last week.
On Wall Street, the three major stock indexes ended flat to slightly higher on Friday. The Standard & Poor's 500 index was a hair below its five-year closing high on Thursday, racking up a weekly gain of 0.33%.
The Dow Jones industrial average closed up 17.21 points, or 0.13%, at 13,488.43. The S&P 500 <.SPX> ended down 0.07 point at 1,472.05. The Nasdaq Composite Index finished 3.88 points, or 0.12%, higher, at 3,125.64.
Shares of Dow component Boeing lost 2.5% to $75.16 on news of problems with its Dreamliner jets.
Wells Fargo , the number four US bank, reported record profits in the fourth quarter, but traders focused on weaker interest margins and mortgage lending. Shares of the number four US bank fell 0.85% to $35.10.
The solid start in the US stock market this year likely resulted from a flood of cash from fund managers scouring for returns in the current low interest rate climate. Investors in US-based funds poured $7.53 billion into stock mutual funds, the most since 2001, data from Thomson Reuters' Lipper service showed on Thursday.
Europe's FTSEurofirst 300 index of top companies across the region also neared levels last seen in March 2011 shortly after the ECB decision to hold rates steady on Thursday and was consolidating those gains on Friday. It closed down 0.11% at 1,634.40, bringing its weekly decline to 0.33%.
In Tokyo, the Nikkei index closed 1.4% higher at 10,801.57 for a ninth straight week of gains, the longest such streak since 1998.
The yield on benchmark US 10-year Treasury notes fell 3 basis points on the day to 1.87% after rising to a session high of 1.93%. It fell from an eight-month high near 1.98% set a week earlier.
German Bund futures were down 16 basis points at 142.54 after hitting their lowest level since November earlier.
Euro Rallies
In the currency market, the euro extended Thursday's rally against the dollar, rising 0.54% to $1.3340 after touching $1.3365 earlier, its highest point since April.
The euro was on track for its strongest weekly gain against the dollar in nearly four months.
The greenback, however, strengthened against the yen, rising 0.45% to 89.17 yen. It touched a 2-1/2-year high at 89.44 yen earlier after the Japanese government agreed on a $117 billion spending boost for the economy, and new Prime Minister Shinzo Abe stepped up pressure on the Bank of Japan to ease monetary policy more aggressively.
The BOJ is likely to adopt a 2% inflation target at its January 21-22 meeting, double the current goal, and will consider more purchases of government debt to achieve the target, sources told Reuters this week.
Back in the United States, a surprise widening of the trade gap in November revived worries about the US economy losing steam at the end of 2012, although some analysts downplayed the figure and focused on the rise in imports as a sign of American spending remaining resilient.
"Today's number was a wake-up call for some people, but the market is holding up so I guess that's a good sign," said Phil Orlando, chief equity market strategist at Federated Investors in New York.
Oil pullback
In the commodities markets, oil prices fell on data showing China's annual consumer inflation accelerated to a seven-month high of 2.5% in December. The news dampened demand as it reduced the chances the central bank easing monetary policy to boost the economy. Expectations of higher US gasoline imports also dampened prices.
Brent crude futures settled $1.25, or 1.12%, lower at 110.64 a barrel, while US oil futures shed 26 cents, or 0.28%, to $93.56.
On the week, Brent recorded its first decline in five weeks, losing 0.6%, while US oil futures clung to a modest 0.5% gain.
Gold prices fell 0.78% at $1,661.49 an ounce as the firmer tone to the dollar prompted some buyers to cash in gains after the metal's biggest one-day rise so far this year. On the week, bullion managed a rise of 0.32%.