European shares tip-toed higher on Friday and bonds held the previous day's gains as traders awaited the pivotal U.S. jobs report, while the yen sank as Japan struggled to shake off recession.
With company news sparse ahead of the first-quarter results season, oil stocks like BP gained as crude rose toward $56 a barrel, fanning the inflation fires that have begun to flicker in recent months.
The main event is the U.S. non-farm payrolls report at 8:30 a.m. EST, with markets on tenterhooks for anything which confirms the U.S. economy's growing strength and reinforces calls for bigger U.S. interest rate rises.
"A lot depends on payrolls," said John Butler, head of European rate strategy at Lehman Brothers in London. "We are in an unusual environment, where payrolls is competing with risk aversion as a driver of markets."
The consensus forecast had been for a gain of 220,000 new jobs in March, which would mark another strong month of hiring after a hefty 262,000 addition in February.
But analysts warn that the weather could affect the numbers, and Thursday's surprise jump in weekly U.S. jobless claims and conflicting data showing jobs in the U.S. Midwest growing at their fastest rate since 1983 has clouded the picture.
Derivatives trade also suggests expectations have been nibbled back.
The dollar got close to 5-month highs against the yen, before settling around the 107.20 mark, after the closely watched tankan report showed business confidence in Japan tumbling, dashing hopes the economy would rebound quickly after a mild recession last year.
"It's very bad, I was shocked," said Azusa Kato, economist at BNP Paribas in Tokyo. "We had thought that the inventory adjustment in the electronics sector was nearly finished but perhaps conditions are worse than we expected."