By Vikram Subhedar
LONDON (Reuters) - The dollar recovered from 12-week lows but was poised for a fourth straight weekly loss in cautious trading on Friday ahead of U.S. payrolls data, while a set of healthy corporate results underpinned gains across European equity markets.
Earlier in the day, an unexpected tightening of policy by China's central bank put Asian markets, already on the back foot on growing concerns about U.S. President Donald Trump's aggressive policies, under further pressure.
While a set of well-received corporate results helped prevent the weakness from spilling over into European stocks, the focus now shifts to the U.S. labour market report, which comes ahead of next week's U.S. Federal Reserve rate decision.
The dollar rose to its session high against a basket of six major currencies, with the dollar index up 0.27 percent to 100.060.
Stock futures on Wall Street were up 0.2 percent with bank shares poised to lead gains.
According to a Reuters survey of economists, nonfarm payrolls probably increased by 175,000 jobs last month, picking up from the 156,000 jobs added in December. The unemployment rate is expected to be unchanged at 4.7 percent in January, near a nine-year low.
FED DECISION NEARS
"The next hurdle for the USD to overcome is the Fed," said analysts at Morgan Stanley, led by strategist Hans Redekker, in a note to clients, adding, however, that conditions for a resumption of the dollar to resume its rally have improved.
Reiterations of continued loose monetary policy in Europe, the Bank of Japan's commitment to control the JGB yield curve and weaker yuan fixings by the People's Bank of China, are "three pluses" for the US dollar, Morgan Stanley said.
Also, in FX markets sterling steadied after its worst fall since October, while the euro was set for its sixth week of gains in seven, at $1.0745 and having gone as high as $1.0829 after the latest signs that growth and inflation are rising in the euro zone.
The rally in risk assets following the U.S. presidential election has faded in recent weeks in what Bank of America-Merrill Lynch (BAML) called the "Trump fatigue". However, the broker noted that fund flows continued to point to broadly bullish sentiment.
Gauges of market volatility, such as the VIX, point to little concern over risks arising from Trump's approach to foreign and trade policy and investors pumped more money into equities, company debt and emerging markets over the past week, BAML said, citing data from fund tracker EPFR.
"(The) VIX in DC higher than VIX on Wall St," analysts at BAML said.
Oil prices edged up after U.S. threats of new Iran sanctions. Comments by Russian Energy Minister Alexander Novak that oil producers have cut their output in accordance with a pact agreed in December also helped to support prices.
Brent crude futures were up 21 cents, or 0.4 percent, to $56.76 a barrel. Brent is set to gain more than 2 percent for the week.
Front-month U.S. West Texas Intermediate crude futures climbed 15 cents, or 0.3 percent, to $53.69 a barrel.
London copper fell, however, after China's tightening of policy spooked metals markets.
(Additional reporting by Marc Jones; Editing by Janet Lawrence and Gareth Jones)
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