Asian stocks edged up on Friday, thanks to gains on Wall Street, but signs of widening cracks in the global economy curbed the risk appetite as markets looked to a key US job report that could determine whether the Federal Reserve cuts rates further.
Investors have been caught out by a set of weak US data this week, including surveys on the services and manufacturing sectors, deepening fears the Sino-US trade war is starting to hurt growth in the world's biggest economy.
“We'll probably see a bounce in Asian shares, but then nervousness will creep into the markets as the day progresses,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 per cent. Japan's Nikkei stock index rose 0.22 per cent, and Australian shares rose 0.54 per cent.
The pan-region Euro Stoxx 50 futures were up 0.44 per cent, German DAX futures 0.33 per cent higher and FTSE futures advanced 0.69 per cent.
US stock futures tacked on 0.1 per cent on Friday, following a 0.80 per cent increase in the S&P 500 on Wall Street overnight on hopes that future Fed rate cuts will support corporate profits.
“The bounce on Wall Street is not a definitive sign. It's actually pessimistic for stocks that two-year yields are falling this much. It shows the bond market hasn't gotten on board with this positive growth story,” AMP's Oliver said.
That sentiment was underscored by a frail performance for world stocks in recent weeks, hurt by political uncertainty in the US and Hong Kong, geopolitical tensions in West Asia, Brexit and a drumroll of weak global data.
In Asia, excluding Japan, equities were on course for the third weekly decline, their worst performance since four weeks of declines ended on August 16.
Japan's Nikkei was down 2.3 per cent for the week, on course for its biggest weekly decline since August 2, pressured by worries about trade friction and a resurgent yen.
Hong Kong shares were down 0.4 per cent and though they are on track for a 0.17 per cent weekly gain, sentiment is fragile as the territory's government mulls emergency laws to contain months of often violent protest against China's rule of the former British colony.
US Treasury prices fell slightly but two-year yields remained near the lowest in two years due to growing signs the US is feeling an economic chill from its trade war with China.
The dollar traded near a one-month low versus the yen, while it was stuck near a one-week trough versus the euro as traders increased bets that the Fed will have to cut rates further to keep growth in the US economy on track.
Data due later on Friday are forecasts to show the US economy added 1,45,000 new jobs in September, more than an increase of 1,30,000 in the previous month.
However, some traders are braced for a disappointing result after the surprisingly soft data earlier this week on US manufacturing, job creation, and the services sector.
The two-year yield, which tracks expectations for US monetary policy, rose slightly to 1.3956 per cent in Asia but was still close to a two-year low of 1.3680 per cent.
Traders see a 85.2 per cent chance the Fed will cut rates by 25 basis points to 1.75 per cent-2.00 per cent in October, up from 39.6 per cent on Monday, according to the CME Group's FedWatch tool.
The Fed has already cut rates twice this year as policymakers try to limit the damage caused by the bruising Sino-US trade war.
The dollar edged down to 106.81 yen, close to a one-month low of 106.48 yen reached on Thursday. The euro was a shade higher at $1.0974, near a one-week high.
For the week, the dollar was down 1.04 per cent versus the yen and off 0.3 per cent against the common currency.
US crude rose 0.63 per cent to $52.78 a barrel, while Brent crude rose 0.54 per cent to $58.02 per barrel.
US oil futures on Thursday touched the lowest in nearly two months as the weak US economic data heightened concerns that excess supplies will push prices lower.
For the week, US crude futures were on course for a 5.6 per cent decline, which would be the worst performance since July 19.
Spot gold, a safe-haven asset that investors often buy during times of heightened risk, rose 0.2 per cent to $1,507.77 per ounce, on course for a 0.75 per cent weekly gain.