Equity markets and high yielding currencies gained on Friday while bonds and the dollar fell, as U.S. jobs and factory data the previous session rekindled hopes that the global economy may be recovering from recession.

The sharp equity market rally which began in early March began to stall at the start of the week as nervousness on the state of the world's economy started to creep back.

But Thursday's U.S. data that showed the first drop in the number of unemployed people remaining on benefit rolls since January and the biggest decline since 2001 heartened investors and helped stocks move back to an upward path.

The reading on the Philadelphia Federal Reserve business activity index was the highest since September 2008, also lifting sentiment.

"Some risk aversion gripped the market in the last few days but the Philly Fed was a lot stronger than expected and that's boosted things a bit," said Nicola Chadwick, international economist at Commonwealth Bank of Australia.

By 0805 GMT the MSCI world equity index was up 0.2 percent, but was still on track for its biggest weekly fall since early March down 3.7 percent.

The dollar, which tends to suffer as an appetite for risk grows, fell 0.1 percent against the euro while the high yielding Australian dollar also gained ground.

ENERGY BOOST

Also reflecting the slightly sunnier outlook for the global economy and a brighter demand outlook, oil rose 0.7 percent towards $72 per barrel.

This helped heavyweight oil and gas producers drive European equity markets higher.

Europe's FTSEurofirst 300 was up 0.5 percent while emerging stocks also recovered some of the ground lost earlier in the week.

Euro zone government bond futures fell as investors exited the relatively risk-free asset in favour of equities. U.S. bond dealers were spooked on Thursday after the Treasury said it would sell a record $104 billion of debt next week.

Overall, equity trading was likely to be volatile as market participants were set to be cautious towards the end of the second quarter and volatility was likely to be high as equity index futures, index options and stock options expire on the same day.

Investors were also sceptical about whether the upward move in equities could last.

"The data aren't enough to start an upward trend," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "The markets needs to see more hard evidence to confirm the improvement that they expect."

Highlighting pressures facing the economy German producer prices fell by 3.6 percent year-on-year in May, the biggest annual decline since April 1987, the Federal Statistics Office said.

But further cause for cautious optimism came from the International Monetary Fund which is likely to revise up its 2010 forecast for the world economy, a senior IMF official said on Friday.