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Alibaba ( BABA ) shares slump almost 7% after earnings miss

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Oil steadies after 2% drop on potential US-Iran nuclear

deal

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Dollar on back foot versus safe-haven currencies

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Bonds extend rally on soft US data

(Updates prices, adds futures for European open)

By Stella Qiu

SYDNEY, May 16 (Reuters) - Asian stocks were set to end

a strong week on a softer note on Friday as the euphoria over

U.S.-China trade talks faded, while firmer bets for policy

easing in the United States sparked a rally in beaten-down bond

markets.

Oil prices steadied after plunging over 2% overnight on news

of a potential U.S.-Iran nuclear deal, but they are still up 1%

for the week as the global economic outlook brightened.

European shares are bracing for a similarly subdued open

with little data or events scheduled later in the day to provide

a clear catalyst. EUROSTOXX 50 futures were mostly flat

while Wall Street futures were also little

changed.

It has been a strong week for global sharemarkets as

investors cheered the trade war truce between the United States

and China, which has greatly lessened the chance of a global

recession. However, there was enough prevailing uncertainty to

keep investors cautious heading into the weekend.

Traders went back to selling the dollar on Friday, with

the U.S. currency falling 0.3% on the Japanese yen and

slipping 0.2% on the Swiss franc. The Australian dollar

also gained 0.4% while the kiwi rose 0.5%.

"The markets confront a weekend with less risk of carrying

open positions than last, with no major trade talks or

significant risks on the calendar," said Kyle Rodda, senior

analyst at Capital.com.

"However, there is always a slight risk-off bias going into

the weekend during a Trump presidency, with a nasty downside

surprise at the Monday open only ever one social media post

away."

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

Japan was flat at 613.7 on Friday but it is

still set for a weekly rise of over 3%. Goldman Sachs raised its

12-month target for the Asian index to 660, from 620 before.

Hong Kong's Hang Seng index fell 0.6%, dragged down

by an almost 5% slump in tech giant Alibaba ( BABA ) after its

quarterly revenue failed to impress investors. Their U.S.-listed

shares had already tumbled 7.6% overnight.

Japan's Nikkei trimmed earlier losses and were

last flat after data showed its economy shrank for the first

time in a year in the March quarter, underscoring the fragile

nature of its recovery now under threat from U.S. trade

policies.

Warning of the risks to the economy from U.S. tariffs, Bank

of Japan board member Toyoaki Nakamura said the central bank

must hold off raising interest rates for the time being.

Swaps imply scant prospects of a move until much later in

the year, with a quarter-point hike in October priced at a 50:50

chance.

On Wall Street, U.S. core retail sales were soft and the

producer prices fell unexpectedly in April, as markets added to

the bets for a total easing of 56 basis points from the Federal

Reserve this year, from 49 bps before.

That helped Treasuries rally after a brutal week. The

benchmark ten-year yields fell 3 basis points to

4.422% on Friday, having already dropped 7 bps overnight to move

away from its one-month top.

For the week, they are still up 8 bps.

The two-year yields were also down 3 bps to

3.945%, having fallen 8 bps overnight.

Fed Chair Jerome Powell said on Thursday that policymakers

felt they need to reconsider the key elements around both jobs

and inflation in their current approach to monetary policy.

So far, U.S. price data have looked benign, but it might be

just a matter of time before the tariff impact starts to show up

in the hard data. Walmart ( WMT ), the world's largest retailer,

said it would have to start raising prices later this month due

to the high cost of tariffs.

In commodities markets, oil prices steadied. U.S. crude

futures bounced 0.1% to $61.71 a barrel while Brent

was at $64.61 per barrel, also 0.1% higher on the day.

In precious metals, gold prices fell 0.7% to $3,217

an ounce, after rallying 2% overnight. For the week, they are

down 3.2%.

(Editing by Stephen Coates and Shri Navaratnam)