SINGAPORE, Oct 4 (Reuters) - Asian stocks retreated on

Friday while oil prices headed for their sharpest weekly gain in

more than a year, as escalating tensions in the Middle East kept

markets on edge ahead of a U.S. jobs report later in the day.

U.S. President Joe Biden said on Thursday that the U.S. is

discussing strikes on Iran's oil facilities as retaliation for

Tehran's missile attack on Israel, while Israel's military hit

Beirut with new air strikes in its battle against Lebanese armed

group Hezbollah.

His comments sparked a surge in oil prices, which had

already been on the rise this week following the widening

conflict in the Middle East.

Brent crude futures eased 0.04% to $77.59 a barrel

on Friday but were headed for a weekly gain of about 7.8%, the

largest since February 2023.

U.S. West Texas Intermediate (WTI) crude futures

steadied at $73.71 per barrel and were on track to advance 8.1%

for the week, the most since March 2023.

"I think we're probably not far away from getting an Israeli

response. The concern, obviously, is that President Biden

confirmed that Iranian oil facilities were discussed as a

potential target," said Tony Sycamore, a market analyst at IG.

"If we woke up on Saturday or Sunday morning to find out

that there had been a response, that wouldn't surprise me at

all. So very much cautious trading ahead of that. We know it's

coming, it's just creating uncertainty because we don't know

what the timing is, and of course we don't know what they've

decided in terms of the targets."

The air of caution in turn left most equities in the red on

Friday.

MSCI's broadest index of Asia-Pacific shares outside Japan

fell 0.32% and was set to end the week little

changed.

Australian shares fell 1%, while stock futures

extended their declines from the previous session.

S&P 500 futures and Nasdaq futures eased 0.03% each,

while EUROSTOXX 50 futures were flat.

Japan's Nikkei also reversed early gains to last

trade 0.08% lower. It was headed for a weekly loss of more than

3%.

The Nikkei has had a choppy few sessions this week as

investors weighed the rising geopolitical tensions against the

domestic rate outlook.

Japanese officials, including Prime Minister Shigeru Ishiba,

said this week that economic conditions in the country were not

ripe for more rate hikes by the Bank of Japan (BOJ), and that

the central bank should be cautious in tightening policy

further.

The comments sent the yen weakening past the 147 per dollar

level, though it traded higher on Friday and last stood at

146.60 per dollar.

Still, the Japanese currency was headed for a weekly fall of

roughly 3%, its sharpest decline since 2016.

In some good news, U.S. dock workers and port operators

reached a tentative deal which will immediately end a crippling

three-day strike that has shut down shipping on the U.S. East

Coast and Gulf Coast, the two sides said on Thursday.

ECONOMIC RESILIENCE

Focus was also on the key U.S. nonfarm payrolls report due

later on Friday, which would provide further clues on the

Federal Reserve's rate outlook.

Expectations are for the world's largest economy to have

added 140,000 jobs last month, slightly down from August's

142,000 increase.

Ahead of the release, the dollar held near a six-week high

against a basket of currencies and was last at 101.92.

A slew of data releases this week have pointed to a U.S.

economy still in solid shape, after the country's services

sector activity jumped to a 1-1/2-year high in September amid

strong growth in new orders, while a separate report from the

Labor Department on Thursday showed the labour market gliding at

the end of the third quarter.

That sent traders paring back bets of another 50-basis-point

rate cut by the Fed next month, with futures pointing to just a

35% chance of such a scenario.

"The U.S. services ISM beat strongly on the upside,

exceeding all forecasts. It certainly points to a robust U.S.

economy," said Alvin Tan, head of Asia FX strategy at RBC

Capital Markets. "Our base case assumption remains that the U.S.

labour market is normalising rather than faltering."

The euro was little changed at $1.1031, though it

was set for a weekly drop of 1.2%. Sterling edged 0.03%

higher to $1.3131, nursing its losses after sliding more than 1%

on Thursday.

The British pound had been weighed down by dovish comments

from Bank of England Governor Andrew Bailey, who said the

central bank could become "a bit more activist" on rate cuts if

there is further good news on inflation.

Elsewhere, spot gold rose 0.06% to $2,657.89 an

ounce.

(Editing by Jacqueline Wong)