The riskier assets were largely recovering from modest falls this week ahead of Bernanke's address to the annual Jackson Hole meeting of central bankers, with few in the market expecting the Fed chief to signal anything major, such as a third round of quantitative easing (QE) or bond buying.

"We're not expecting him (Bernanke) to announce that QE would start any time soon," Christian Schulz, senior economist at Berenberg Bank.

"We expect him to announce that the Fed stands ready to act if things deteriorate but there's no sign of that at the moment," he said.

A steady stream of surprisingly good economic data from the United States over the past week in areas such as consumer spending, housing, inflation and employment have raised questions over whether more stimulus is warranted.

"I think those people who are betting on QE to start imminently will be disappointed and, yes, that would mean that markets would turn south," Schulz said.

The FTSEurofirst index of top European shares recovered from an initial dip at the start of trading on Friday to stand up 0.3 percent 1,081.62 points.

MSCI's world equity index was barley changed at 320.5 points, having lost about 1.2 percent this week on signs global economic activity is gradually slowing even as the fragile U.S. recovery gathered some strength.

The euro was up 0.1 percent against the dollar at $1.2521. For the last week it has been pegged in a tight range roughly between $1.2465 and $1.26, with market players reluctant to take large positions in the run up to Jackson Hole.

The dollar index was down 0.1 percent at 81.607.

ECB RIPPLES

Although Bernanke's speech is the immediate focus for many investors, an ECB policy meeting next week is the other major concern as debate rages over how to resolve the region's three-year-old debt crisis.

The ECB wants to ease the painful borrowing costs for Spain and Italy by purchasing their bonds, in the teeth of tough opposition from Germany's Bundesbank, to give euro zone governments time to implement the reforms needed to repair their balance sheets.

The mass circulation German newspaper Bild has reported that Bundesbank chief Jens Weidmann considered resigning several times because of his opposition to the ECB's buying bonds.

Weidmann's predecessor as Bundesbank chief, Axel Weber, quit the ECB last year in protest at a previous bond buying scheme and was followed out the door by the bank's chief economist Juergen Stark, triggering fears of a German exit from the euro.

Bild said Weidmann had ultimately been persuaded to stay on by the German government but the debate over the ECB plans is still going on.

Another ECB policymaker from Germany, Joerg Asmussen, said late on Thursday that the central bank should only buy sovereign bonds if the International Monetary Fund is involved in setting the reform programmes conditional on the intervention.

Governing Council member Ewald Nowotny from Austria has also stressed the need for strict conditions.

The situation is expected to come to a head at the policy meeting on September 6, with anxiety over the outcome helping German debt pare its recent losses, with 10-year Bund yields at 1.33 percent.

Spanish 10-year government bond yields were a basis point higher at 6.63 percent, with equivalent Italian yields up 2.5 basis points at 5.82 percent.

In commodity markets Brent crude was trading above $113 a barrel and heading for its second monthly gain, supported by lingering investor hopes of more monetary easing from central banks that could spur economic growth and support oil demand.

There is also some concern about oil supplies as tension is rising again over Iran's nuclear programme.

A U.N. report said on Thursday that Iran had doubled the number of uranium enrichment centrifuges it has in an underground bunker, despite Western pressure and the threat of an Israeli attack.

Brent crude was up 52 cents at $113.17 a barrel, while U.S. crude added 38 cents to $95.00.

Gold was little changed on Friday, holding near a 4-1/2 month high hit earlier this week at $1,655.40 an ounce.

Bullion, which is on track for its third straight month of gains is seen as a hedge against inflation and would be expected to rise if the Fed's Bernanke does hint at a resumption of cash printing to boost growth.

"If Bernanke disappoints, then we could see a slight sell-off, but I am not looking at gold to fall violently," said Phillip Futures analyst Lynette Tan.

(Additional reporting by Lewa Pardomuan; Editing by Will Waterman)

• A Permanent Economic Emergency