Asian shares hit a new 14-month high on Friday on investor optimism over the global economy, while the dollar rose on short-covering following its slide earlier in the week.

European shares were set to fall back on Friday after a 1.3 percent rise in the previous session, with miners likely to give back some gains after gold slipped from a record high.

At 2.54 a.m. EDT, DJ Euro Stoxx futures were down 0.2 percent, Germany's DAX futures were down 0.3 percent and France's CAC-40 futures were down 0.3 percent.

Japan's benchmark Nikkei average rose 1.9 percent <.N225>, with resource-related stocks climbing after gold hit a record high the previous day.

Oil money and other investors appear to be buying resource-related sectors in the past few days, encouraged by climbs in international commodity markets, said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

Shares of Japanese exporters such as Sony Corp <6758.T> and Honda Motor <7267.T> rose as the yen dipped against the dollar.

But market players remain worried that the yen could rise further after climbing to an 8- month high against the dollar this week, and hurt Japanese exporters' earnings.

The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> extended the week's robust gains to hit a 14-month high of 402.16 points. After trimming some gains it was 0.4 percent higher at 401.61.

The index has risen about 4.7 percent this week, on track for its best weekly gain in almost three months.

It has gained 62 percent so far this year, on track for its biggest annual jump since an 80 percent rise in 1993.

But it is still down 32 percent from a peak hit in November 2007 before a global recession started to set in.

South Korean shares climbed 1.9 percent <.KS11> after the Bank of Korea held interest rates steady and comments by the central bank's governor prompted investors to scale back their bets for a near-term rate rise.

Bank of Korea Governor Lee Seong-tae noted signs of cooling in the property market and predicted economic growth would taper off this quarter.

South Korea and some of its neighbors have recovered more quickly from the financial crisis than expected, in contrast to the still-weak performance of big Western economies.

Unlike in the United States or Europe, which suffered from financially induced recessions, the slump in Asia was a more traditional recession based on weakness in U.S. demand, said Adrian Foster, head of financial markets research for Asia-Pacific at Rabobank in Hong Kong.

I think all you need for out-performance in Asia -- ideally you've got rising global indices, and Asia would out-perform in that environment.

But in fact you just need relative stability in global indices, and that gives us all a chance to refocus on domestic fundamentals, Foster said, adding that economic fundamentals looked positive throughout Asia.

China's Shanghai Composite Index <.SSEC> rose 4 percent as the market played catch-up with a global rally over an eight day national holiday in China that lasted until Thursday. <.SS>

DOLLAR GETS REPRIEVE

The Bank of Korea's rate decision had been in the spotlight after the Reserve Bank of Australia earlier this week became the first of the Group of 20 central banks to raise interest rates since the onset of the financial crisis.

The RBA's rate hike underscored for many investors that the global economy is on the mend, and has spurred gains in energy and metal prices on expectations of a pick-up in demand.

The U.S. Dow Jones industrial average rose 0.6 percent on Thursday as a surprising quarterly profit from Alcoa got third-quarter earnings reporting season off to a strong start.

U.S. retailers also posted generally strong sales figures, while the number of U.S. workers filing jobless claims slid to a nine-month low. <.N>

The dollar rose 1 percent against the yen to 89.25 yen, pulling away from an 8- month low of 88.01 yen hit on trading platform EBS earlier this week.

The dollar also rose 0.4 percent against a basket of six major currencies to 76.293 <.DXY>, pulling away from a 14-month low of 75.767 hit this week.

The dollar has come under renewed pressure in the past week as the prospect of U.S. interest rates remaining low for a while led to a sell-off, fuelling talk the dollar was becoming the preferred funding currency for leveraged carry trades.

U.S. Federal Reserve Chairman Ben Bernanke said on Thursday that while the central bank's vast support for the economy will likely be needed for a while, the Fed will have to remove those measures as the economy heals to ward off inflation.

U.S. 10-year Treasuries dipped 6/32 in price to yield about 3.270 percent, up about 1 basis point from late U.S. trading on Thursday.

Gold inched lower to around $1,050 per ounce but was not far from a record high above $1,060 hit on Thursday.

Crude oil futures dipped 51 cents to $71.18 a barrel after gaining 3 percent on Thursday as better-than-expected U.S. economic data fueled hopes that the global recovery was gathering steam.

(Additional reporting by Aiko Hayashi in Tokyo; Editing by Jan Dahinten)

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