Stocks head for worst week since mid-February

By Patrick Graham

LONDON (Reuters) - Stock markets in Europe and Asia struggled on Friday, with only monthly U.S. non-farm payrolls numbers standing in the way of shares globally racking up their biggest weekly fall since mid-February.

Concerns over growth, the failure of extraordinary central bank stimulus and banking profitability in an era of negative interest rates, allied to a still tepid recovery in oil prices , has kept a lid on any optimism over the past month.

Money markets show investors have all but abandoned betting that U.S. and global growth will be strong enough to swallow further rises in official U.S. interest rates this year.

Yet with expectations of such rises at rock bottom, some more bullish talk from U.S. Federal Reserve policymakers and the chance that Friday's payroll numbers could support the case for a move as soon as June have at least halted sales of the dollar.

"Yes, you've heard it before but our sense is there is a degree of added importance in today's non-farm payrolls report," said Derek Halpenny, European Head of Global Markets Research at Bank of Tokyo-Mitsubishi UFJ.

"Two strong jobs report with evidence of increased wage inflation would certainly result in the (June) decision being a lot more finely balanced and would inevitably result in the rates market shifting more toward a move and a strengthening of the dollar."

Wall Street was set to open marginally lower after stock markets in Europe fell by around 1 percent in morning trade, weighed down by a 4 percent fall in the world's biggest steelmaker Arcelor Mittal after quarterly results.

Shanghai shares <.SSEC> fell almost 3 percent and Hong Kong by 1.7 percent, putting Asian markets at one-month lows and the MSCI world index on course for a more than 2 percent fall this week - its worst since the second week of February.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent, set for a weekly decline of 3.3 percent, its biggest in 12 weeks. Japan's Nikkei <.N225>, which resumed trading after Golden Week holidays, closed down 0.25 percent as the strong yen ate into corporate profits.

"Markets have been trading cautiously all week leading into payrolls and a big part of that is the renewed fear and uneasiness about global growth," said Deutsche Bank credit analyst Craig Nicol.

ROLL ON PAYROLLS

Economists polled by Reuters forecast Friday's payrolls data at 1230 GMT will show U.S. employers added 202,000 workers in April following a 215,000 increase in March, with the jobless rate holding at 5.0 percent.

But job-related data published over the past couple of days has been softer than market expectations, casting a shadow on expectations of solid job growth.

The dollar index has recovered from Tuesday's 15-month low of 91.919 to trade at 93.617 <=USD>, on track for a 0.6 percent gain for the week. At $1.1422, the euro was also down 0.3 percent on the week, but analysts are unconvinced that is the start of a wider upturn for the greenback.

The yen, which jumped after the Bank of Japan stood pat on policy last week, changed hands at 106.965 per dollar , off its 1-1/2-year high of 105.55 set earlier this week.

"It will need a significant upside surprise from the jobs report for the dollar to change trend," said Yujiro Goto, a currency strategist at Japanese bank Nomura in London.

"We expect gains in dollar/yen to be capped around 108 and similarly downside for the euro will be limited."

(Additional reporting by Anirban Nag; Editing by Toby Chopra)