European stocks nudged up on Friday, but markets remained jittery after last week's bomb attacks in Madrid and cautious about prospects for global economic growth. Wall Street looked set for a muted opening with futures and options expiry likely to make indices volatile in the U.S. and Europe. On a day short on economic data, news that Pakistani troops may be closing in on Osama bin Laden's right hand man in al-Qaeda supported stock indices, and edged bond yields higher and the dollar up against both the euro and the yen. Geopolitical tensions have been at the front of investors' minds since rush-hour train blasts in the Spanish capital last week killed more than 200 people. "There is an acute sense of unease in the markets regarding geopolitical and terrorist risks. With key anniversaries looming over the start of the Iraq invasion, the markets are going to stay in a state of heightened alert," said David Brown, Chief European Economist at Bear Stearns. "News that Bin Laden's key al Qaeda deputy has been cornered by security forces in Pakistan will be seen as a positive development over the future, though," he added.
Strategists, however, have not abandoned their belief that the U.S.-led recovery is on track despite security worries and mixed signals from the world's largest economy. Data released on Thursday showed manufacturing in the U.S. mid-Atlantic region slowed in March, but that first-time jobless claims to their lowest level since early 2001. By 1245 GMT, the FTSE Eurotop 300 index <.FTEU3> was up 0.5 percent higher at 978 points. The DJ Euro Stoxx 50 index <.STOXX50E> was up 0.4 percent at 2,773 points. Earlier Asian indices were mixed with Japan's Nikkei 225 <.N225> ending down 0.57 percent but a broad index of the region's stocks <.MSCIAPJ> up 0.24 percent.
BONDS, DOLLAR
The dollar clawed back some of its 1-1/2 cents loss against the euro the previous session, helped by hopes leading al-Qaeda figure Ayman al-Zawarhi will be captured in Pakistan. "Now we have the theory that if al-Zawahri is caught in Pakistan this should be somewhat of a relief," said Peter Fontaine, market strategist at KBC in London. "Al-Zawahri is thought to be the brains of the organisation so this might be a very big hit against it and so the terror threats short-term may be lifted." By 1245 GMT, the yen was trading at 107 per dollar , not far from Thursday's peak around 106.36. The dollar firmed to $1.2342 per euro , having shed 1-1/2 cents the previous session. Euro zone government bond yields nudged higher, focusing on al-Qaeda rather than the shooting of Taiwan's head of state Chen Shui-bian and Vice President Annette Lu.
At 1245 GMT, the interest rate-sensitive two-year Schatz yield was up 0.4 basis points at 2.10 percent, pulling away from a 8-1/2-month low of 2.076 percent struck on Thursday. The 10-year Bund yield was up 1.5 basis points at 3.898 percent. Crude oil futures eased back on profit taking with May Brent down 23 cents at $32.90. NYMEX April futures stood 16 cents down, but still in sight of Wednesday's 13-year highs. Safe-haven gold was flat at $410.60/$411.35 an ounce.///