World stocks steadied on Friday but were still on track for a sixth consecutive week of gains, while the euro fell on worries about the region's prospects.

MSCI's main world stock index <.MIWD00000PUS> was flat despite modest gains in Europe and a rebound in Japan. But the index was up 1.6 percent on the week, gaining around 28 percent since a March 9 low.

U.S. financial services firm State Street said evidence was building that big investors were buying into the rally, particularly in U.S. and emerging market stocks.

It seems the nightmare may now be ending. Markets have been having quite a party of late, State Street said in a note. Institutional investors are backing this rally.

Nascent investor confidence has been encouraged by positive results from the likes of JPMorgan and Google, while economic data in some areas is improving. Citigroup was to report results later in the day.

A jump in Chinese industrial output in March has added to a sense instilled by some U.S. indicators that the pace of deterioration has slowed from the alarming rate of just a few months ago.

European Central Bank President Jean-Claude Trichet said on Friday the battered global economy faces a difficult year but will begin a recovery in 2010. Other central bankers have also noted some signs of stabilization.

European shares were volatile, with the pan-European FTSEurofirst 300 <.FTEU3) up around 0.2 percent.

The current development in the stock market is encouraging. The short-term uptrend is very robust, German brokerage Close Brothers Seydler said in a note.

Earlier, Japan's Nikkei <.N225> gained 1.7 percent.

STRONG DOLLAR?

The euro fell against the dollar and the yen, dented by other comments from Trichet and concerns about the weak outlook for the euro zone economy.

Trichet said in Tokyo that he appreciated U.S. policymakers saying a strong dollar was in the U.S. interests, and that to say the euro is weak doesn't reflect the current situation.

The comments pushed the euro to a one-month low against the dollar of $1.3065 on trading platform EBS.

Concerns that the euro zone economy, unlike the United States, is yet to show any tentative signs of recovery also weighed on the single currency.

Two-year euro zone government bond yields marked an 8-day high, tracking softer U.S. Treasury prices and higher bourses.

The two-year Schatz yield was up 4 basis points at 1.423 percent after marking an intraday high of 1.472 percent and underperforming other issues.

The 10-year Bund yield was up 1 basis point at 3.185 percent.

(Editing by Mike Peacock)

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