European stocks gained ground, as investors take heart from a late Thursday rally on Wall Street despite worries stemming from the warning by S&P that it may downgrade the U.K. government's credit ratings.
"Wall Street managed to stem its slide ahead of the close last night, and although the major U.S. indexes all finished in the red there was a marked reversion mid-afternoon as sentiment started to improve," said Matt Buckland, a dealer at CMC Markets.
"This turnaround does seem likely to cheer European markets at the open, although the imminent long weekend could lead both to lower volumes and a more conservative approach to risk with traders reluctant to leave positions open for several days."
On Wall Street Thursday, the Dow Jones Industrial Average closed 1.5% lower at 8292.13, after rebounding from the day's low of 8221. The Standard & Poor's 500 index lost 1.7% to 888.33.
The weaker tone of the U.S. markets stemmed from the warning by ratings agency S&P that the U.K. must get its finances in order or lose its coveted triple-A credit rating. S&P changed its outlook for the U.K.'s credit rating to negative -- meaning that a downgrade, while not imminent, could come at some time in the next couple of years.
Asian share markets were moving off their lows late Friday as early losses on the back of Wall Street's drop gave way to some short-covering before a long weekend in the U.S.
Japan's Nikkei 225 closed down 0.4%, well off its lows, while South Korea's Kospi Composite closed 1.3% lower. Hong Kong's Hang Seng index was last seen down 2.3%.
In the currency markets, the dollar fell to a two-month low against the yen in Asia Friday after Japan's finance minister said the government has no plans to intervene to boost the U.S. currency, prompting non-Japanese players to sell it.
The U.S. currency also touched a four-and-a-half-month low versus the euro, weighed down by speculation on potential cuts in the U.S.'s credit ratings after the U.K. move.
The dollar stood at ¥94.31, after hitting a low of ¥93.86, the lowest since ¥93.55 on March 19. The euro stood at $1.3928, having reached $1.3972, the dollar's weakest mark since Jan. 5.
