Richard Drew, Associated Press
MILAN — The euro extended its rally Friday to near six-month highs after the currency's chief rate-setter warned about inflation, while stocks were hurt by a weak U.S. jobs report and China's move to tighten lending.
The euro rose to $1.3367, up 0.5 percent on the day, consolidating a surge sparked by European President Jean-Claude Trichet's comments that inflation risks had risen and that economic data were better than expected. The prospect of higher interest rates — even months away — tends to boost a currency.
A disappointing U.S. labor report weighed on markets somewhat, however, a day after successful eurozone bond auctions helped restore some confidence in Europe. Adding to the negative sentiment, China's central bank on Friday raised the amount of money that banks must keep on reserve for the seventh time in a year, an attempt to counter inflation and cool off growth.
"Although the week could have been catastrophic had the news from Portugal, Spain and Italy not been quite as upbeat, the air of caution that's settling in is certainly warranted," IG Markets Ben Potter said.
The major European indexes were all trading down at midday Friday. Britain's FTSE was 0.86 percent lower at 5,971.95 and Germany's DAX was down by 0.36 percent to 7,049.84. The CAC-40 in Paris shed 0.37 percent to 3,906.09.
Wall Street was set to open down slightly ahead of the release of key economic data, including retail sales and consumer prices for December and earnings from companies like JP Morgan Chase. Dow futures were down 0.02 percent at 11,681 while the broader S&P 500 futures were down 0.2 percent to 1,278.80.
Oil prices fell to $90.42 a barrel as traders weighed whether demand in a slowly recovering U.S. economy will be enough to push crude above $100 soon. The dollar was up also against the yen at 82.86.
Japan's Nikkei 225 stock average closed down 0.9 percent at 10,499.04 after Prime Minister Naoto Kan's Cabinet resigned en masse and a new government was put in place in a bid to revive the economy.
Investors were taking profits after the Nikkei closed at an eight-month high on Thursday, and the dollar's fall under the 83-yen line hurt exporters.
South Korea's Kospi rose 0.9 percent to 2,108.17, the third time this week that it has reached a record high.
Australia's S&P/ASX 200 gained 0.1 percent to 4,801.50 and benchmarks in India and the Philippines also rose. Indexes in Taiwan, Singapore and New Zealand fell.
Chinese shares closed lower before the central bank announced it had raised its reserve requirements.
Mindful of the political turmoil linked to past bouts of inflation, Beijing is trying to curb a flood of money in the world's second largest economy following a lending spree triggered by stimulus aimed at fighting the global financial crisis.
The benchmark Shanghai Composite Index fell 1.3 percent to 2,791.34, while the Shenzhen Composite Index of China's smaller, second exchange tumbled nearly 2 percent to 1,232.73.
Analysts in the region were careful not to read too much into Wall Street's lackluster performance from the day before. Asian markets don't always follow trends in other regions, said Kwong Man Bun, chief operating officer at KGI Asia Ltd. in Hong Kong, where the Hang Seng index in Hong Kong was up 0.2 percent.
"Liquidity is quite abundant in Hong Kong," Kwong said. "The Hang Seng will reach 25,000 before the Chinese New Year." In addition, fears were easing over Europe's debt crisis and China's monetary tightening.
"That's why we have seen increasing fund inflows into Hong Kong," he said.
In New York on Thursday, stocks retreated after a report found that more people applied for unemployment benefits last week. The U.S. Labor Department said first-time applications for unemployment benefits rose 35,000 from the week before to 445,000. It was the highest level since October and above what economists had predicted.
The Dow Jones industrial average fell 0.2 percent while the broader Standard and Poor's 500 lost 0.2 percent.
Pamela Sampson in Bangkok and Ji Chen in Shanghai contributed to this report.
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