Markets are becoming anxious about the possibility of recession, with the S&P getting close to a bear market on Thursday, at nearly 20 per cent off its January all-time high.
In an interview late on Thursday, US Federal Reserve Chair Jerome Powell said the battle to control inflation would "include some pain". Powell repeated his expectation of half-percentage-point interest rate rises at each of the Fed's next two policy meetings, while pledging that "we're prepared to do more".
The war in Ukraine has aggravated supply chain disruptions and inflationary pressures already in place after more than two years of the COVID-19 pandemic, but stocks enjoyed a bounce on Friday.
"There's an awful lot of negative sentiment out there, we're looking at a 40 per cent chance of recession," said Patrick Spencer, vice chairman of equities at Baird Investment Bank.
"A lot of fund managers have cut their equity allocations and raised cash, though we think this is a correction rather than a bear market."
MSCI's world equity index rose 0.32 per cent after hitting its lowest since November 2020 on Thursday, though it was heading for a 4 per cent fall on the week, its sixth straight week of losses.
S&P futures bounced 1.13 per cent after the S&P index dropped 0.13 per cent overnight, with the index also eyeing a sixth straight week of declines.
European stocks rallied 0.96 per cent and Britain's FTSE 100 gained 1.17 per cent.
The US dollar eased 0.22 per cent to 104.54 against a basket of currencies, but remained close to 20-year highs due to safe haven demand.
Russia has bristled over Finland's plan to apply for NATO membership, with Sweden potentially following suit.
Moscow called Finland's announcement hostile and threatened retaliation, including unspecified "military-technical" measures.
The dollar rose 0.36 per cent to 128.76 yen, while the euro gained 0.3 per cent to $1.0408, recovering from Thursday's five-year lows.
Cryptocurrency bitcoin also turned higher, cracking through $30,000 after the collapse of TerraUSD, a so-called stablecoin, drove it to a 16-month low of around $25,400 on Thursday.
"Some traders may see the sharp fall this month as an opportunity to buy the dip, but given the hugely volatile nature of the coins, the crypto house of cards could tumble further," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
The moves higher in equities were mirrored in US Treasuries, with the benchmark US 10-year yield edging up to 2.9221 per cent from a close of 2.817 per cent on Thursday.
The policy-sensitive 2-year yield was at 2.6006 per cent, up from a close of 2.522 per cent.
"Within the shape of the US Treasury curve we are not seeing any particularly fresh recession/slowdown signal, just the same consistent marked slowing earmarked for H2 2023," Alan Ruskin, macro strategist at Deutsche Bank, said in a note.
German 10-year government bond yields edged up to 0.9250 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan was up almost 2 per cent from Thursday's 22-month closing low, trimming its losses for the week to less than 3 per cent.
Australian shares gained 1.93 per cent, while Japan's Nikkei stock index jumped 2.64 per cent.
In China, the blue-chip CSI300 index was up 0.75 per cent and Hong Kong's Hang Seng rose 2.71 per cent, encouraged by comments from Shangahi's deputy mayor that the city may be able to start easing some tough COVID restrictions this month.
"We had some pretty big moves yesterday, and when you see those big moves it's only natural to get some retracement, especially since it's Friday heading into the weekend. There's not really a new narrative that's come through, " said Matt Simpson, senior market analyst at City Index.
Oil prices were higher against the backdrop of a pending European Union ban on Russian oil, but were still set for their first weekly loss in three weeks, hit by concerns over inflation and China's lockdowns slowing global growth.
US crude rose 0.75 per cent to $106.97 a barrel, and global benchmark Brent crude was up 1.05 per cent at $108.58 per barrel.
Spot gold, which had been driven to a three-month low by the soaring dollar, was up 0.2 per cent at $1,824.61 per ounce.
