LONDON World shares edged lower and the dollar rose before U.S. jobs data on Friday which investors will watch even more closely than usual after Fed officials raised concerns about possible side effects of its stimulus programme.
Minutes from the Federal Reserve's December policy meeting unsettled financial markets on Thursday after they showed some policymakers were worried about the programme's longer-term impact.
Fed bond-buying has underpinned appetite for risk and the comments reopened debate on how much longer the central bank will keep stimulating the U.S. economy, unnerving investors before the U.S. employment figures.
European shares echoed their Asian peers to edge lower. But following a sharp jump on Wednesday after the United States edged back from the "fiscal cliff" budget crisis, they were on track for weekly gains of almost 2.7 percent.
Tentative signs that the euro zone economy may have passed the worst of its downturn also helped to restrict the moves.
Markit's Eurozone Composite PMI, which gauges business activity across thousands of the region's companies, rose in December to 47.2 from 46.5 in November - below the 50 line which divides growth from contraction but at its highest level since March last year.
"The surveys at least bring some substance to the belief that the worst is over and that a return to growth is in sight for the region in 2013," said Chris Williamson, chief economist at Markit.
London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were down 0.1-0.5 percent by mid-morning, while the MSCI index of world shares was just over 0.2 percent lower at 345.85.
Wall Street was expected to open slightly higher though, with S&P 500 futures up 0.1 percent and contracts for the Dow Jones and the Nasdaq 100 up 0.2 percent.
U.S. stocks will largely depend on the non-farm payrolls report due at 1330 GMT and any clues it gives on the health of the U.S. and global economies.
Analysts polled by Reuters expect a 150,000 rise in jobs, with unemployment holding steady at 7.7 percent. However, after a better-than-expected ADP employment report on Thursday, many may now be betting on an above-consensus jobs number.
"The Fed has made it clear that it will keep policy loose until unemployment drops to 6.5 percent or below, so strong jobs data will undoubtedly raise expectations of a more hawkish Fed," analysts at Tradition brokerage said in a note.
The Fed's concerns about the longer-term impact of its policies gave fresh momentum to the recent slide by low-risk bonds including U.S and German debt.
Bund futures slipped almost half a point to 143.12, having already fallen steeply from last week's close of 145.64.
Benchmark U.S. Treasury yields continued their climb, hitting an eight-month high of 1.96 percent, while in Asia, 10-year Japanese government bond yields touched a 3-1/2-month high of 0.83 percent.
In the currency market, the dollar hit its highest level against the yen since July 2010 at 87.835 while the euro fell to a three-week low of $1.3006. The dollar .DXY also touched a six-week high against a basket of currencies.
"We have seen quite a broad-based dollar rally after the minutes which has ignited a fresh debate about how much liquidity the Fed is going to pump into the economy," said Daragh Maher, FX strategist at HSBC.
The yen has fallen in recent weeks as investors bet the new government will push the Bank of Japan to weaken the currency by implementing aggressive economic stimulus.
"Breaking through 88 in dollar/yen is a significant move. It was a target for a number of people in the market and the question is now whether we have a mindset of taking profit or we look to extend," added Maher.
The dollar's recent climb makes dollar-based assets more expensive for non-dollar investors and this hit precious metals and oil.
Brent crude shed 0.6 percent to $111.47 a barrel while gold fell 1 percent to $1,645, dragging silver down more than 2 percent to $29.48.
(Additional reporting by William James and Anooja Debnath; editing by David Stamp)