* Euro shares extend gains, best week for world stocks in 8 months * Fed cheer gives way to caution ahead of Chinese data on Monday * Selloff in dollar eases, currencies steadier after wild ride By Marc Jones LONDON, July 12 European shares rose on Friday and the dollar steadied in the wake of reassuring comments from the U.S. Federal Reserve on its stimulus programme, leaving world stocks on track for their best week in almost eight months. Europe was drawing support from a record high close on Wall Street on Thursday, though investors in Asia turned cautious after China's finance minister doused hopes of fresh stimulus after he said sub-7 percent growth was acceptable for Beijing. The broad FTSEurofirst 300 index was up 0.3 by mid-morning as it eyed a fifth day of gains, while a steady close in Asia left MSCI's world index, which tracks stocks in 45 countries, on track for its best week since November. This week's rally in financial markets has spread across stocks and bonds to oil and metals and been driven by hints from the U.S. Federal Reserve that it may not be as eager to phase out its support as markets had started to believe. "Markets have been reassured by the mention (by the Fed) of financial conditions and the weakness of inflation," said Guy Foster, head of portfolio strategy at Brewin Dolphin. "There remains little reason for the Fed to tighten policy although given their comments to date we assume a modest reduction in purchases in September," he added. After a week of swings in the world's big currencies, foreign exchange markets were trading in a calmer fashion, though positioning had started ahead of key Chinese growth data due next week. The dollar index, which tracks the greenback's performance against a basket of major currencies, bounced off 2-1/2 week lows, having slumped more than 2 percent after Fed Chairman Ben Bernanke assured it would remain in support mode. That was the steepest fall in four years, normally seen only during financial crises. "This week was not pretty for some people. With dollar-longs removed, no one wants to take big new bets ahead of China," said a foreign exchange market researcher at an advisory firm in Tokyo who requested anonymity. The euro slipped to $1.3037 having jumped as far as $1.3208 on Thursday though it was well off this week's trough of $1.2755. One of the ECB's top policymakers, Peter Praet, dragged on the currency after he said bank will keep interest rates at current levels or cut them even further, as long as inflation remains moderate. PORTUGAL STRIFE Portuguese government bonds fell again after Lisbon requested a delay to the next review of the country's bailout programme due to its political crisis. Tensions were reignited this week after the country's president threw out plans that looked to have patched up a government rift and instead demanded some kind of grand coalition. That would include opposition Socialists, who are distinctly cool on the government's austerity and have been calling for snap elections. "Portugal is struggling as the government delays the next quarterly review to the end of August, which is clearly fuelling fears that Portugal doesn't have the appetite for further fiscal consolidation measures in place," said Nick Stamenkovic, a rate strategist at RIA Capital Markets. The rest of the bloc made gains, however, as the updraft of the Fed's soothing message this week was helped by an upgrade to Ireland's credit outlook by rating firm S&P. Commodity markets have enjoyed a particularly strong run this week as the talk of ongoing central bank support has bolstered hopes of a pickup in global growth. Gold along with other precious metals eased after four days of gains but was on track for its biggest weekly gain in nearly two years. Copper was cruising to its best week in two months as it dipped back below $7,000 a tonne. Brent oil was steady at just under $108 a barrel having hit a three-month high on Thursday as the prospect of more supply from non-OPEC producers and concerns about China's demand growth capped gains. ""We are seeing some concern that the upward momentum (in prices) has reversed," said Michael McCarthy, chief market strategist at CMC Global Markets in Sydney.
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