LONDON (Reuters) - European stocks were flat on Friday, losing early steam ahead of mid-day U.S. employment data but the euro clung to gains from a two-cent rally after euro zone policymakers moved to shore up struggling banks to fend off a financial crisis.
Aggressive liquidity measures unveiled Thursday by the European Central Bank (ECB) to help lenders facing straitened wholesale funding conditions further bolstered investor confidence after the European Union's pledge earlier this week to present a plan for a coordinated recapitalization of the region's banks.
But ahead of the 1230 GMT release of September's U.S. jobs report -- expected to show dismally weak employment -- few are willing to place big bets.
The FTSEurofirst 300 .FTEU3 index of top European shares seesawed but eased from an early high of 947.52 points while world stocks .MIWO00000PUS ticked 0.3 percent higher, on track for a two-percent rise on the week.
S&P 500 index futures eased a touch while German Bund futures rose after a sharp sell-off in the previous session.
"It will take a really negative payrolls data for the risk off trade to return," said Geoff Kendrick, currency strategist at Nomura.
The euro, which has fallen back from a 2011 peak near $1.50 in May, was up slightly around $1.3429, after jumping from a low of $1.3240 on Thursday.
"Market pricing of a financial Armageddon has been pared back after yesterday's ECB measures, but structurally the euro could still head back toward multi-month lows," said Kendrick.
Many market players put the euros rally down to short-covering -- when traders buy back into a currency to realize gains on an earlier bet it would fall -- and believe the shared currency's downtrend remains intact.
"Some of the euro/dollar shorts have been squeezed as the market seems to be taken the positive aspects from the ECB measures and hopes of recapitalization of European banks," said Paul Robson, currency strategist at RBS Global Banking.
"Going into the U.S. jobs data, a very weak number could see the euro drop while a consensus to marginally weak number could help."
In a further boost to euro zone market sentiment, European Commission President Manuel Barroso said the EU's executive arm was proposing coordinated action to cleanse banks of toxic assets.
Hopes that a more robust policy response to Europe's two-year-old sovereign debt crisis would underpin the region's demand for fuel and other commodities set gold, oil and copper prices on track for weekly gains.
"This stabilization may be a sign of a strong rebound to come if we get significant progress in the resolution of the euro zone debt crisis," said Cholet Dupont strategist Vincent Guenzi.
Sterling rose against the dollar <GBP=D4, sidestepping a Moody's ratings downgrade of 12 British financial institutions, including part-nationalized Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L).
On Thursday, the currency hit its lowest level since July 2010 after the Bank of England announced another round of quantitative easing.
Additional reporting by Neal Armstrong, Arniban Nag in London and Blaise Robinson in Paris; editing by Ron Askew