Oil stabilized on Friday after a sharp reversal from a 2-1/2 year peak overnight, calming concerns that a surge in prices would hurt economic recovery.

Brent oil prices vaulted more than 7 percent to almost $120 before pulling back on rumors that Libyan leader Muammar Gaddafi had been shot and on Saudi Arabia's reassurances that it could counter Libyan supply disruption.

The pullback in oil, underpinned late gains in U.S. stocks and caused shares in Asia's key markets to find their feet after a steady decline earlier this week.

Japan's Nikkei average <.N225> rose for the first time in four days while Seoul <.KS11> shuffled up, drawing support from Wall Street's overnight bounce.

The Nikkei may bounce back today after oil stopped its advance, but the dollar/yen rate will hold the key to gains, said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.

But with many economic indicators out next week from the U.S. and ahead of the weekend, which will probably bring more clues about the Libyan situation, investors won't take too many risks, Takahashi said.

The S&P 500 <.SPX> recovered from early lows following the retreat in oil but was down 2.7 percent for the week after sharp gains in crude prices this week cast doubt on the strength of the U.S. economic recovery.

The broader Asia-ex Japan stocks <.MIAPJ0000PUS> stabilized near 1-1/2 month lows.

In the currency markets, the dollar stayed above a record low against the Swiss franc after suffering heavy losses overnight as investors sought safety in other currencies, fearing the unrest in Libya could spread to other oil producers.

It has fallen nearly 4.8 percent against the franc in the last two weeks, its worst showing since June.

Meanwhile, the euro held near three-week highs, helped by more hawkish comments from European Central Bank officials with ECB policymaker Axel Weber saying the only direction for interest rates to go is up.

Other ECB officials recently talked tough about fighting inflation, reinforcing market view that the ECB will raise interest rates before the U.S. Federal Reserve.

Gold, another safe-haven, consolidated around $1,400 an ounce as safe-haven buying dried up after the rally in oil fizzled.

U.S. Treasuries consolidated overnight gains in Asian time, with ten-year yields falling to 3.45 percent. (Additional reporting by Antoni Slodkowski in Tokyo and Ian Chua in Sydney; Editing by Tomasz Janowski)

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