* European shares rise after U.S. jobs data
* Euro pulls back from near 2-month high vs dollar
* Euro rally seen fragile on doubts about euro zone recovery
By Emelia Sithole-Matarise
LONDON, July 9 (Reuters) - European shares rose on Friday as
investors welcomed positive signals from the U.S. economy but
the euro retreated from two-month highs against the dollar as
its recent rally looked fragile on lingering doubts about the
euro zone recovery.
European stocks tracked gains in Asia after first-time U.S.
jobless claims dropped to their lowest level in two months and a
handful of retailers reported solid sales.
The pan-European FTSEurofirst 300 index of leading shares
<> was up 0.4 percent by 1045 GMT, adding to gains of 5
percent over the past three days.
It was on track for its biggest weekly gain in a year, but
is still down 8.5 percent from a mid-April peak, on worries
about debt levels in Europe and the global economic recovery.
World stocks as measured by MSCI <.MIWD00000PUS> added 0.3
percent, supported by the gains in Europe and Asia.
"After periods of declining equity markets, we now have a
bit of relief rally, but it's not something which I would expect
to last," said Klaus Wiener, head of research at Generali
Investments.
"We still have a lot of political uncertainties. Will the
European Union be able to reform itself and will the governments
stick to the consolidation efforts? There is also a lot of
anxiety in the market regarding the strength of the economy."
Fears that recovery from the world's worst downturn in
decades could stall had triggered outflows of more than $11
billion from equity funds worldwide in the first week of July
and induced the biggest inflows in 18 months for safe haven
money market funds, fund tracker EPFR Global said.
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DIFFERENT WATERS NEXT WEEK
"The bounce in risk has been primarily led by short-covering
...There're still a lot of challenges. We'll move into different
waters next week when U.S. earnings are released and we start
getting forecasts for the four quarter," said Kenneth Broux,
financial markets analyst at Lloyds TSB in London.
The euro slipped off two-month highs against the dollar as
investors booked profits before the weekend and strategists said
its recent rally would wane on lingering worries over the euro
zone's recovery.
It was trading down about 0.2 percent on the day at $1.2674
<EUR=> by 1118 GMT, after rising to a 2-1/2-month high of
$1.2723.
Options with a strike price of $1.2650 set to expire later
on Friday were seen supporting the euro, traders said, after it
fell to the day's low of $1.2661.
The single currency got a lift late on Thursday following
ECB President Jean-Claude Trichet's comments that the euro area
economy performed much better in the second quarter although he
said it would still grow "at a moderate and still uneven pace in
an environment of high uncertainty".
The rally in riskier assets such as equities eroded demand
for safe-haven government bonds, with German Bund prices
extending falls from the previous session.
The 10-year German Bund yield <DE10YT=TWEB>, which moves
inversely to price, was last up three basis points at 2.657
percent while the U.S. 10-year T-note yield <US10YT=TWEB> rose
one basis point to 3.050 percent.
Oil rose towards $76 a barrel, heading for its biggest
weekly gain since May, after falling U.S. inventories and the
positive economic data helped the pickup in risk appetite and
sentiment across markets.
U.S. crude for August <CLc1> rose 30 cents to $75.73 a
barrel by 1135 GMT, after touching an intraday peak of $76 on
Thursday, the highest price this month.
(Additional reporting by Atul Prakash, editing by Toby
Chopra)
