* Risk-on trend continues, traders eye non-farm payrolls
* Dollar firms vs major currencies, Treasuries slip
* Strong payrolls could be 'double-edged sword'
* Bunds weaken; Portugal edges towards bailout
By Simon Jessop
LONDON, April 1 (Reuters) - World stocks rose and the dollar strengthened on the opening day of the second quarter, ahead of U.S. jobs data expected to show that a recovery in the world's largest economy remains firmly on track.
Concerns over euro zone debt, Japan's nuclear crisis and conflicts in the Middle East could all nix the rally, however, while a bullish jobs reading may stoke inflation fears and embolden central bank hawks looking to raise interest rates more quickly.
U.S. stock futures point to a higher open on Wall Street, with the Dow Jones industrial average, Standard & Poor's 500 and Nasdaq composite seen up 0.2 percent to 0.4 percent.
On the flip-side, U.S. Treasuries slipped ahead of the jobs data as investors looked to take on more risk and became more wary of tighter monetary policy from the Federal Reserve.
In Europe, equities had eaked out a small gain in the previous quarter and set about extending that run in early Friday trade. By 1025 GMT, the index was up 0.6 percent, just off its intraday high.
Traders said all eyes were on the release of U.S. non-farm payrolls data at 1230 GMT, which is expected to show 190,000 people were hired in March, fuelling optimism about the sustainability of growth in the world's largest economy.
A positive reading "is set to boost risk appetite as the global recovery begins to gather momentum, said Jonathan Sudaria, night dealer at Capital Spreads, although it could be a "double-edged sword", added Jean-Yves Dumont, head of asset allocation strategy and funds at Dexia Asset Management.
"Stronger-than-expected data will embolden the Fed's hawks," Dumont warned, after a senior U.S. Federal Reserve official suggested, in a Wall Street Journal report, the Fed could raise interest rates by three-quarters of a percentage point by the end of the year.
Among the top movers were Irish banking shares, a day after Dublin released details of stress tests showing its banks needed an extra 24 billion euros, in line with expectations but pushing the total bailout cost to $100 billion.
That news had caused a late sell-off in European stocks on Thursday, although buyers piled back in on Friday, and by 1025 GMT, the STOXX Europe 600 Banks was up 0.9 percent.
The MSCI world equity index and the Thomson Reuters global stock index were also higher, up around 0.1 percent to 0.2 percent, but neither could eclipse emerging stocks as the standout gainer.
The index rose 0.7 percent in early trade to a near-three-year high, fuelled by robust manufacturing numbers from India and China and fund flows back into emerging market equities.
Chinese factory data proved particularly supportive as it showed production rose while cost inflation slowed, easing concerns over further monetary tightening by Beijing.
Building on these later in the session will be the latest U.S. ISM numbers, due out at 1400 GMT, which, while expected to weaken slightly to 61 from 61.4, would still remain strong, adding weight to the recovery theme. The Nikkei proved the major loser in overnight Asian trade, closing down 0.5 percent after hitting technical resistance and on concerns about corporate profits in the wake of its recent natural disasters.
BUNDS FALTER, PORTUGAL FRAGILE
The pre-jobs report, risk-on mode was also evident in the currency markets as the yen fell to a 10-month low against the euro and slid beneath a key technical level against the dollar, which could be set for further gains.
"A strong non-farm payrolls number would be reflected in the dollar/yen and it could rise to 84.50 in the short term," said Simon Derrick, head of currency research, at Bank of New York Mellon. "We expect to see prolonged yen weakness due to loose monetary and fiscal policy in Japan."
The dollar was up 0.6 percent to 83.65 yen at 1028 GMT, after earlier hitting a six-week high of 83.748 yen on trading platform EBS and rising above its 200-day moving average against the yen.
The dollar also firmed 0.4 percent against a basket of major currencies and strengthened against the euro to $1.4149.
Among commodities, Brent crude futures hit a four-week high near $118 a barrel on prospects for increased demand from the United States, the world's biggest importer, before scaling back to trade flat around $117.
Portuguese government bonds were hit again on Friday, a day after yields tested fresh record highs, with a successful, extraordinary debt auction to friendly buyers failing to win over the broader market.
The Portuguese/German 10-year government bond yield spread was steady on the day, but outright yields were slightly higher, with five-year yields up 13 basis points at 9.78 percent.
The peripheral euro zone nation -- seen next in line by the markets for an international bailout -- missed its 2010 budget deficit target in the previous session, prompting a widening in its spread to benchmark bunds.
Elsewhere, Irish bonds were steady after the bank stress-test results, while bund futures were down 24 ticks, continuing a broad downtrend since the start of the year, as traders position themselves for a European Central Bank interest rate rise next week.
(Additional reporting by Anirban Nag in London and Blaise Robinson in Paris; Editing by Toby Chopra)