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European stocks set for fifth week of gains in a row

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Oil slides after 2% drop on potential US-Iran nuclear deal

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Dollar on back foot

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Bonds extend rally on soft US data

By Stella Qiu and Linda Pasquini

SYDNEY/GDANSK, May 16 (Reuters) - European stocks looked

set to cap a strong week with gains on Friday, as upbeat

earnings helped sustain the rally sparked by a U.S.-China trade

truce, while oil prices remain relatively low, further

supporting stocks and bonds.

It has been a positive week for global share markets as

investors cheered a tariff truce between the United States and

China that greatly reduces the risk of a global recession.

Europe's STOXX 600 rose 0.57% on Friday, and was up

1.6% on the week, set for its fifth straight week of gains,

helped by luxury group Richemont's 7% climb after it

reported strong quarterly sales.

MSCI's main gauge of Asia-Pacific stocks ex-Japan

rose more than 3% this week, and the S&P500 is

up 4.5% so far, with futures pointing to further gains at

Friday's open.

The U.S. data calendar is lighter for the rest of the day,

though there will be the University of Michigan consumer

sentiment survey and U.S. import prices data for April.

However, there was enough uncertainty to keep investors

cautious heading into the weekend.

"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."

Oil prices have been choppier this week, rising on the U.S.

China deal, before falling sharply on Thursday on increased

supply pressure from an OPEC+ output hike and the prospect of an

Iranian nuclear deal.

Brent futures were down slightly on Friday after a

2% Thursday fall, and were set to end the week just 0.8% higher.

Oil prices - low by recent standards - are helping support

expectations that inflation is easing, as did U.S. data from

Thursday, which did not show any dramatic impact from U.S.

tariffs, helping both shares and bonds.

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 57 basis points from the Federal Reserve this

year, from 49 bps before.

"The relief from softer U.S. retail sales and PPI was

palpable in the bond market yesterday and overnight," said

Kenneth Broux, head of corporate research FX and rates at

Societe Generale.

"This poured cold water on the (global) bond sell-off and

put the brakes on the hawkish repricing of the Fed outlook."

The benchmark 10-year Treasury yield fell 4

basis points to 4.41%, extending a 7-bps drop overnight, and

euro zone government bond yields also slid.

Of course, 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.

Lower U.S. yields left currency traders selling the dollar,

if not too dramatically. It was last down 0.27% on the yen at

145.3, while the euro was 0.12% higher at $1.1198.

In precious metals, gold prices fell 1.23% to $3,200

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

down 3.7%.