LONDON World shares edged lower and the dollar rose before U.S. jobs data on Friday which investors will watch more intensely than usual after the Federal Reserve linked future stimulus to labour market performance.
Minutes from the Federal Reserve's December policy meeting unsettled financial markets on Thursday by revealing some policymakers already want to slow or stop asset purchases before the end of 2013 due to worries about financial stability.
Fed bond-buying has underpinned appetite for riskier assets across the markets so a strong jobs number may boost chances the central bank could halt its purchases sooner than many had expected.
"After the minutes, markets perhaps expect the Fed to reduce its bond purchases or shorten the time it will continue such purchases," said Richard Falkenhall, FX strategist at SEB.
Wall Street was likely to open slightly higher, with S&P 500 futures up 0.1 percent and contracts for the Dow Jones and the Nasdaq 100 up 0.2 percent, but much will depend on the non-farm payrolls report due at 1330 GMT.
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.
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 flat to down 0.4 percent, while the MSCI index of world shares was just over 0.2 percent lower at 345.85.
ADP vs US gov't jobs data: link.reuters.com/fex44t
Global services activity: link.reuters.com/dyh85s
Euro zone debt outlook link.reuters.com/jex44t
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 over half a point to 142.72, 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 1.95 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 in nearly 2-1/2 years against the Japanese yen at 88.34 yen, up 1.2 percent on the day. 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.
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 $1.43 to $110.71 a barrel while U.S. crude was down $1.12 at $91.80.
The fresh focus on when the Fed may end its so called quantitative easing (QE) programme of asset purchases sent gold down 2 percent to a 4-1/2 month of $1,629.59 an ounce.
"The market had been too preoccupied with the sheer size of the quantitative easing programme, and had not seen that at some point you would need a phase out of QE policy," Christin Tuxen, an analyst with Danske Bank, said.
Among other precious metals, silver was down 3 percent to $29.24 an ounce, having also slipped to a 4-1/2 month low at $29.21 in earlier trade.
(Additional reporting by Anooja Debnath and David Brough,; editing by David Stamp and Giles Elgood)