LONDON, Oct 24: European stocks edged higher on Friday but investors remained nervous about corporate earnings and whether the recent equities rally may be derailed by expected higher interest rates.

The dollar held its ground against the euro after gaining on Thursday on US unemployment figures which firmed hopes that the recovery in the world’s largest economy is creating jobs.

Bonds yields were down, supported by nervousness in stock markets with stock index futures pointing to a lower opening on Wall Street.

European shares trod water, kept in check by worries about whether stock markets have got ahead of themselves after the recent rally.

The Organization for Economic Cooperation and Development (OECD) added to the cautious tone of markets.

Downside risks may (temper) the optimism, the OECD said. For example, rising interest rates in the future could curb investment and consumption expenditures.

The FTSE Eurotop 300 index of pan-European blue chips was up 0.16 per cent at 897 points while the narrower DJ Euro STOXX 50 was flat at 2,490 points.

The Eurotop 300 shed 2.3 per cent in the previous two sessions as disappointment that companies have not been more bullish in their outlooks prompted investors to take money off the table after solid gains took pan-European indices near to year highs earlier this month.

Asian stocks were broadly lower although Japanese markets stabilised after big falls the day before. The TOPIX edged up 0.78 per cent to end at 1,024.99, while the Nikkei average ended flat at 10,335.70, after sinking 5.1 per cent on Thursday, its biggest loss since the day after the September 11, attacks on the United States two years ago.

The dollar held firm on the day against the euro at $1.1780 per euro and was flat against the yen at 109.61 per dollar, after dipping almost to 110 in Asian trade.

Traders said the pound had risen to around $1.70 in early Asian trade on Friday, the first time it has been there since October 1998 and the third consecutive day of five year highs.

Sterling was supported by prospects of an interest rate hike by the Bank of England (BOE) when its Monetary Policy Committee (MPC) meets next month.

Everyone was talking about global deflationary pressure until very recently, and this could mark some sort of a turning point for the global economy and currency markets, said Mitsuru Sahara, foreign exchange manager at UFJ Bank in Tokyo.

British third quarter gross domestic product (GDP) data released on Friday showed the economy grew by 0.6 per cent in the third quarter. Retail sales were up 0.6 per cent in September, firming expectations of an interest rate rise.

Despite European stocks inching up, bond yields dipped slightly. The interest rate-sensitive two year Schatz yield was down 0.5 basis points at 2.669 per cent with the benchmark 10-year Bund yield down 1.8 basis points at 4.280 per cent.

Crude oil futures traded 45 cents higher at $29.08 on Friday, helped up by a refinery outage in the United States. Safe haven gold was up slightly at $384.70 to $385.20 a troy from its New York close at $384.20 to $384.70.—Reuters