SINGAPORE, May 10 (Reuters) - Asian stocks rose on

Friday, on course for a third week of gains, while the dollar

was on the back foot as fresh signs of an easing U.S. labour

market stoked optimism around interest rate cuts this year ahead

of next week's crucial inflation data.

Sterling was steady at $1.2515, having touched over

two-week low of $1.2446 on Thursday after Bank of England (BoE)

paved the way for the start of rate cuts as soon as next month.

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

rose 0.66% and was on course for a nearly 1%

gain for the week, its third straight week of gains. Japan's

Nikkei was 1.6% higher.

China stocks also gained, with blue-chip shares

0.14% higher, while Hong Kong's Hang Seng Index rose

1.4%, having touched an eight month high in early trading.

Data on Thursday showed U.S. initial claims for state

unemployment benefits increased more than expected by 22,000 to

a seasonally adjusted 231,000 for the week ended May 4, the

Labor Department said.

The figures follow last week's report showing U.S. job

growth slowed more than expected in April and the increase in

annual wages fell below 4.0% for the first time in nearly three

years.

"After a period of remarkable strength and resilience, signs

are growing that the U.S. labour market may be starting to

soften," said Ryan Brandham, head of global capital markets,

North America at Validus Risk Management.

Brandham said the softer labour market should help the Fed

in the fight against inflation, even if the central bank is

hoping to tame prices without materially impacting the labour

market.

Markets will be closely watching April U.S. producer price

index (PPI) and the consumer price index (CPI) out next week for

signs that inflation has resumed its downward trend towards the

Fed's 2% target rate.

Hotter-than-expected inflation reports last month knocked

back any lingering expectations of interest rate cuts in the

near term, with markets now fully pricing in a 25-basis-point

rate cut only in November though there remains a chance of a cut

in September.

Traders now anticipate 47 bps of cuts this year from the

Fed, drastically lower than the 150 bps they priced in at the

start of 2024.

The shifting expectations around U.S. rates have kept the

dollar adrift, with the euro holding to its 0.3%

overnight gains and last at $1.0778. The single currency was on

track for its fourth straight week of gains on the dollar.

The dollar index, which measures the U.S. currency

versus six peers, was little changed at 105.24.

BOE Governor Andrew Bailey said there could be more

reductions than investors expect, with central bank's move was

the latest sign of the growing divergence between Europe and

U.S. rate outlook, with interest rates expected to fall earlier

and further across Europe than in the United States.

Markets now imply a 50-50 chance of a BoE cut in June and

are almost fully priced for August. They also imply an 88%

chance the European Central Bank will ease in June.

The yen remains in the spotlight after last week's

suspected rounds of interventions from Japanese authorities. It

was last at 155.51 per dollar, with Japan's Finance Minister

Shunichi Suzuki repeating Tokyo's recent warnings that it was

ready to take action against disorderly currency moves.

Data from Bank of Japan suggests Tokyo spent nearly $60

billion last week in suspected interventions to pull the yen off

its 34-year lows of 106.245 per dollar. However, with the yen

nudging its way up to the 155 levels, traders are once again on

intervention alert.

Ben Bennett, Asia-Pacific investment strategist at Legal And

General Investment Management, said the Ministry of Finance

wants to avoid spikes in volatility which could negatively

impact domestic financial markets.

"So like we suspect a few days ago, they will intervene if

intraday moves become too large. But I don't think they'll push

against a steady depreciation, like we've seen since."

In commodities, oil prices were on the rise, with U.S. crude

up 0.63% to $79.76 per barrel and Brent at

$84.33, up 0.54% on the day.

Spot gold added 0.3% to $2,352.92 an ounce.