European shares bounced back while the yen and government bonds erased gains in volatile trade on Friday after robust corporate results eased credit fears which have triggered sharp moves across financial markets.

The FTSEurofirst 300 index was up 0.4 percent, having fallen more than 1 percent earlier, as auto shares rallied following strong Volkswagen results.

MSCI main world equity index was down 0.6 percent, off its earlier low.

The iTraxx Crossover index, a widely watched indicator for European credit market sentiment, tightened 9 basis points after blowing out to 445 bps earlier. Emerging market sovereign bond spreads tightened 4 basis points.

It seems that the credit fear trade has eased a touch this morning, said David Keeble, head of fixed income strategy at Calyon.

The yen fell 0.6 percent against the dollar as panic buying of the low-yielding currency, long under pressure as a funding vehicle for risky carry trades, eased.

It's a two-way business. Some might be closing down their carry trades, while others see this as an opportunity to go in at very attractive levels, said Niels Christensen, FX strategist at Nordea.

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