Most Asian stock markets edged higher on Friday, keeping a wary eye on volatile Chinese shares, while currency traders went on the defensive after a wild see-saw week and mixed U.S. economic data, bidding up the safe-haven yen.

Markets took a deep breath as the Shanghai index <.SSEC> opened lower after jumping 4.5 percent on Thursday, but Chinese shares soon moved into the black and were up 1 percent by late morning.

The index has lost about 15 percent in just two weeks, unnerving global investors who are trying to gauge how China's revival is playing out while wrestling with continued mixed signals on recovery prospects in major Western economies.

Investor sentiment has not yet fully recovered despite yesterday's rebound, said analyst Zhou Lin at Huatai Securities in Nanjing. So they will watch the market's performance as well as economic fundamentals to decide on their investments.

A government think-tank said China's gross domestic product would grow about 8.5 percent in the third quarter from a year earlier, picking up pace from the second quarter's 7.9 percent.

Modest gains in U.S. stocks overnight, buoyed by positive manufacturing data and Thursday's rebound in Chinese stocks, also lent some support to most Asian markets, offsetting disappointment that U.S. weekly jobless claims increased for a second week. <.N>

As Shanghai moved higher, the MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> pared early losses to stand little changed by 0316 GMT.

Most markets in the index, however, were slightly higher with the exception of Australia <.AXJO>, which fell 1.5 percent after a cautious outlook on loan demand from major lender Westpac Banking Corp . {ID:nSYD166512]

In Japan, the Nikkei average <.N225> fell 1.3 percent as automakers fell ahead of the end of the U.S. cash for clunkers program on Monday. The program has boosted U.S. car sales.

Shares in the world's biggest automaker, Toyota Motor <7203.T>, shed 2.7 percent.

YEN RISES

The yen rose broadly against other major currencies, particularly those leveraged to global growth, as investors fretted about the potential for further weakness in Chinese shares and shied away from riskier investments.

The dollar fell 0.3 percent to 93.93 yen, approaching this week's one-month low of 93.66 yen as Japanese exporters sold, while the euro also eased and the Australian dollar fell 0.7 percent to 77.74 yen.

Sentiment toward the Australian dollar was hurt after ratings agency Moody's Investors Service repeated its concerns about the deteriorating financial position of many of Australia's states and said downgrades could not be ruled out.

U.S. crude futures initially edged up to a seven-week high above $73 a barrel but then slipped back below the $73.00 mark.

Japanese government bonds advanced, with futures hitting a five-month high after gains in U.S. Treasury debt prices in New York and the drop in Tokyo stocks.

Treasury futures rose slightly in Asian trade.

(Editing by Kim Coghill)

(Additional reporting by Jungyoun Park in Seoul, Elaine Lies and Masayuki Kitano in Tokyo)

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