By Lisa Twaronite
TOKYO (Reuters) - Asian shares edged higher on Friday following gains on Wall Street while the dollar steadied, but gains were capped by uncertainty over whether the Federal Reserve will raise interest rates next week.
European stocks were seen following suit, with the pan-European FTSEurofirst 300 index of top-European shares set for its biggest weekly gain since July.
Financial spreadbetters expected Britain's FTSE 100 to open 0.5 percent higher, Germany's DAX to open up by as much as 0.8 percent, and France's CAC 40 to open up 0.9 percent.
U.S. stock futures rose 0.3 percent, suggesting a slightly firmer opening on Wall Street later in the session.
MSCI's broadest index of Asia-Pacific shares outside Japan was up about 0.2 percent, below its session highs but still on track to rise more than 3 percent for the week.
Chinese shares erased earlier gains, with the CSI300 index and Shanghai Composite Index down 0.9 percent and 0.8 percent, respectively.
Investors are awaiting Chinese industrial output, retail sales and investment data on Sunday for clues on whether the world's second-largest economy is continuing to lose momentum, which could help set the tone for trading next week.
Major U.S. stock indexes posted modest gains on Thursday, but European stocks broke a three-day run of gains with a drop of nearly 1.5 percent
Japan's Nikkei stock index closed down 0.2 percent, but pared earlier losses and ended a choppy week 2.6 percent higher, even as investors remained cautious.
"We could still see volatile trading next week on speculation about the Fed rate hike," said Yutaka Miura, senior technical analyst at Mizuho Securities, who expected investors to continue unwinding their positions.
"Even if stocks jump, we don't know if and how long the rally will last so it's safe to reduce positions in an environment like this," Miura said.
Government data released before the market open showed that large Japanese manufacturers' sentiment turned positive in the July-September quarter, suggesting that companies were taking China's recent slowdown in stride.
YUAN FIRMS, DOLLAR STEADIES
U.S. data on Thursday suggested the labor market was gaining momentum in early September as fewer Americans filed for weekly unemployment benefits, but a separate report showed weak inflation, further clouding the outlook for what the Fed will decide to do at its Sept. 16-17 policy meeting.
"Based on the performance of the U.S. economy alone, the Fed should raise rates but they do not operate in a vacuum," said Kathy Lien, managing director at BK Asset Management in New York.
Considering volatile global equities, a dovish European Central Bank and actions by other central banks, it will be difficult for the Fed to act, she said in a note to clients.
The dollar rose about 0.1 percent against the yen to 120.75, though it gave up ground late in the Asian session to the euro, which added about 0.1 percent from U.S. levels to $1.1294.
The dollar index, which tracks the greenback against a basket of six major rivals, was steady from U.S. trading at 95.454.
China's yuan firmed against the dollar in onshore trading on Friday. The greenback came under pressure overnight as the yuan shot higher in offshore markets on what was suspected to be rare intervention by Chinese state banks, likely taking aim at speculators betting on further falls in currency after its surprise devaluation last month.
In commodities, U.S. crude oil futures gave back some of their overnight gains after top exporter Saudi Arabia said it saw no need for a producer summit to defend prices.
U.S. crude was down about 0.6 percent in Asian trading at $45.66 a barrel, after rallying 4 percent on U.S. Energy Information Administration data that showed strong demand for gasoline.
Brent, which gained 2.8 percent in the previous session, was down about 0.1 percent at $48.86.
Spot gold edged down from U.S. levels to $1,110.30 an ounce, on track to drop about 1 percent for the week, its third straight weekly fall.