The euro on Friday rose against the dollar to its highest since April 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 U.S. 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, U.S. and European central bankers have talked up the prospects for their economies in the past 24 hours.
Philadelphia Federal Reserve Charles Plosser on Friday repeated his outlook that the U.S. economy will likely grow about 3 percent in 2013, bringing the jobless rate down to 7 percent 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.
The MSCI index of world shares held steady at 349.74 after rising earlier to 350.15, the highest level since May 2011. It was on track for a weekly gain of 0.56 percent, following a 3.11 percent rise last week.
On Wall Street, the three major stock indexes were narrowly mixed. The Standard & Poor's 500 index was a hair below its five-year closing high on Thursday but was still poised to eke out a weekly increase of 0.33 percent.
The Dow Jones industrial average was up 15.19 points, or 0.11 percent, at 13,486.41. The S&P 500 was down 0.64 points, or 0.04 percent, at 1,471.48. The Nasdaq Composite Index was up 2.03 points, or 0.07 percent, at 3,123.79.
Dow component Boeing
Wells Fargo
The solid start in the U.S. stock market likely resulted from a flood of cash from fund managers scouring for returns in the current low interest rate climate. Investors in U.S.-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 and was consolidating those gains on Friday. It closed down 0.11 percent at 1,634.40, bringing its weekly decline to 0.33 percent.
In Tokyo, the Nikkei index closed 1.4 percent higher at 10,801.57 for a ninth straight week of gains, the longest such streak since 1998.
The yield on benchmark U.S. 10-year Treasury notes fell 3 basis points on the day to 1.87 percent after rising to a session high of 1.93 percent. It fell from an eight-month high near 1.98 percent 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 percent to $1.3340 after touching $1.3365 earlier, its highest 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 percent to 89.17 yen. It touched a 2-1/2-year high at 89.44 yen earlier after the Japanese government agreed 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 percent 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 its trade gap in November revived worries about the U.S. 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 commodity markets, oil prices fell on data showing China's annual consumer inflation accelerated to a seven-month high of 2.5 percent in December. The news together with expectations of higher gasoline imports dampened demand as it reduced the chances the central bank easing monetary policy to boost the economy.
Brent crude futures settled $1.25 or 1.12 percent lower to $110.64 a barrel, while U.S. oil futures shed 26 cents or 0.28 percent at $93.56.
On the week, Brent recorded its first decline in five weeks, losing 0.6 percent, while U.S. oil futures clung to a modest 0.5 percent gain.
Gold prices fell 0.78 percent 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 percent.
