Asian shares rose on Friday, with South Korean stocks hitting a 21-month high, as upbeat U.S. manufacturing data and jobless claims boosted hopes for a sustainable economic recovery.

The dollar edged up to a seven-month high against the yen above 94.06 yen.

But trade was light, with many investors in the region as well as in Europe and the United States away for the Good Friday holiday, and gains were limited by caution ahead of more U.S. job data later in the day.

Japan's Nikkei average hit an 18-month peak for the fourth straight day, getting a boost from a rise in tech shares and automakers such as Honda Motor <7267.T> and Toyota Motor <7203.T> following a jump in U.S. auto sales in March.

Shares of Japanese exporters drew additional support from the yen's fall this week to a seven-month low against the dollar, while expectations for stronger Japanese earnings -- which kick off next week with retailers -- buoyed the overall market.

But analysts said that signs of overheating could leave the market vulnerable to profit-taking should the U.S. nonfarm payroll report disappoint.

There's quite a bit of caution about the U.S. jobs data and given that the market's a bit overheated, it's really poised for profit-taking, said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

But many recent worrying factors overseas have been cleared up, such as Greece, and markets are responding favorably.

An index of U.S. manufacturing activity in March rose to its highest level in over 5- years, the Institute for Supply Management said on Thursday, while a U.S. Labor Department report showed initial weekly claims for jobless benefits fell more than expected.

Data later on Friday is expected to show U.S. nonfarm payrolls grew for only the second time since the economy fell into recession in late 2007.

A good payroll number would bolster hopes that the world's largest economy has now recovered enough to grow on its own without massive government support.

The Nikkei <.N225> closed up 0.4 percent at 11,286.09, an 18-month closing high, and briefly rose to 11,313.98, just above a 38.2 percent retracement of a sell-off from its 2007 peak to its 2008 trough.

Honda and Toyota each rose more than 1 percent on news that U.S. auto sales jumped to a seven-month high last month.

The MSCI's broad measure of shares in the Asia-Pacific excluding Japan edged up 0.1 percent <.MIAPJ0000PUS>, paring gains after hitting its highest level in nearly three months at one point.

South Korea's KOSPI <.KS11> touched a high of 1,725.39, its loftiest level since late June 2008, as Hyundai Motor jumped 5.8 percent and Samsung Electronics rose 1.4 percent. The index later pared its gains to 0.3 percent.

BATTERED YEN

The yen has been hurt by market expectations that the Bank of Japan will hold off on raising interest rates for the next year or two in a bid to spur the stubbornly weak economy.

By contrast, U.S. primary dealers see a better than even chance of the Federal Reserve raising interest rates late in 2010, a factor that has helped support the dollar this year.

Also weighing on the yen was talk that Japanese investors may move funds into higher-yielding currencies abroad for returns now that the new fiscal year has started.

A recovery in the investment environment, given strong stocks and commodity prices and overall stability in financial markets, helps expectations for Japanese investors to show appetite for overseas assets, said Kazuyuki Kato, treasury department manager at Mizuho Trust & Banking.

The euro dipped 0.2 percent against the dollar to $1.3560 and edged up 0.1 against the Swiss franc at 1.4313 francs.

On Thursday, the euro posted its biggest one-day rise against the franc in nine months amid talk of intervention by the Swiss National Bank. The Swiss central bank declined to comment on the franc's price action.

South Korea's foreign exchange authorities were spotted buying dollars to curb the won's strength on Friday.

Japanese government bonds dipped as investors took profits following the previous day's rally.

June 10-year JGB futures rose 0.03 to 138.72 after posting their biggest one-day gain in four months the previous day, when JGB investors began Japan's new financial year by scooping up debt.

Ten-year U.S. Treasuries rose around 2/32 in price with a yield around 3.872 percent, down about a basis point from late U.S. trade on Thursday and staying below a nine-month high of 3.92 percent hit last week.

U.S. stock markets will be closed on Friday, and the Securities Industry and Financial Markets Association is recommending an early Treasuries market close at 1600 GMT.

(Additional reporting by Masayuki Kitno, Kaori Kaneko, Shinichi Saoshiro, Satomi Noguchi in Tokyo and Jungyoun Park in Seoul

(Editing by Kim Coghill)

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