Asian stocks bolted on Friday posting their third straight day of gains after China's pledge to remain invested in Europe boosted confidence, but the euro dipped after rebounding from near four-year lows the previous day.

European shares opened higher, with Britain's FTSE 100 <.FTSE> up 0.5 percent higher, Germany's DAX <.GDAXI> up 0.4 percent and France's CAC 40 <.FCHI> gaining 0.6 percent.

Oil prices surged to two-week peaks and high yielding currencies maintained their steep gains made the previous day. The return of the appetite for risk pushed the Japanese yen lower, boosting exporter shares in Tokyo.

The MSCI index of Asia Pacific stocks outside Japan rose 2.1 percent <.MIAPJ0000PUS>, adding to the previous day's 2.2 percent gains. It is on track for its biggest weekly percentage gain since mid-December.

The market is rejoicing after yesterday's comments (from China). These are signs of rapid short covering, said Binay Chandgothia, chief investment officer at fund manager Principal Global Investors in Hong Kong who oversees $2.2 billion.

Next week is important to see if the rally will sustain. Fundamentally some of the concerns are still there -- they haven't gone away, he said referring to Europe's debt problems.

Japan's benchmark Nikkei <.N225>, rebounding from a six-month low on Thursday, rose 1.3 percent in its best performance in 2 weeks but profit taking capped gains as investors were reluctant to take big positions ahead of the weekend.

U.S. financial markets are shut on Monday because of the Memorial Day holiday.

The Korea Composite Stock Price Index <.KS11> (KOSPI) climbed 0.95 percent as foreigners turned net buyers of stocks after a nine-session selling streak, which was the longest since March 2009.

The People's Bank of China said on Thursday a Financial Times report that Beijing was concerned about its euro-zone bond holdings due to the European debt crisis was groundless.

The report had driven the euro to a near four-year low against the dollar and near an 8-1/2-year low against the yen, and soured risk appetite globally as investors worried that Europe's debt woes would grow into a larger financial crisis.

Beijing's denial fueled a rally on Wall Street, with the benchmark S&P 500 marking the biggest percentage gain in nearly three weeks.

In Asia, energy <.MIAPJEN00PUS> and financial services <.MIAPJFN00PUS> sectors were the main outperformers while defensive sectors like utilities <.MIAPJUT00PUS> and telecoms <.MIAPJTC00PUS> were laggards.

The euro handed back some gains as worries about Europe's debt problems returned to haunt investors who sold into the single currency's strength.

In Asian trade, the euro was down 0.1 percent from late New York at $1.2298 against the dollar.

In our view, uncertainty remains in Europe and the sources of worries could resurface, said a note from Credit Agricole CIB.

It could come from the negative economic impact of the fiscal adjustment or from the sometimes difficult coordination between the Eurozone's members. There could also be market talks coming back about the issue of government debt restructuring.

However the Australian dollar and the New Zealand dollar held on to Thursday's steep gains of 3.5 percent and 3.1 percent against the dollar, respectively.

The Aussie was also boosted by fading expectations of an already-slim chance of a rate cut at the Reserve Bank of Australia's policy meeting next week.

Oil prices surged to a two-week high, rising above $75 a barrel after posting their biggest two day gain since mid-August. Forecasts of supply disruptions in the wake of an intense Atlantic hurricane season also provided a leg-up.

Metals were steady to marginally higher with copper hitting a two-week high on the heels of the flight to riskier assets while the jump in oil prices was additionally helped by speculations about supply disruptions due to the Atlantic hurricane season.

(Additional reporting by Aiko Hayashi in TOKYO; Editing by Kazunori Takada) (Reporting by Umesh Desai)

Germany Japan United kingdom China