Dollar, Chinese shares steady as Europe wobbles

LONDON (Reuters) - The dollar inched higher on Friday, putting it on track for a monthly rise in May, while Chinese shares steadied after a plunge a day earlier that stoked concerns about the financial health of the world's second largest economy.

European stock markets <.FTEU3> were a touch lower, with dealers pointing to doubts over Greece's ability to make good on a promise it would reach a cash-for-reforms deal with its euro zone partners by Sunday.

Oil markets were almost 1 percent higher, while prices of German government bonds, a safe haven for money in the euro zone looking for refuge from the Greek worries, rose.

The dollar spent much of April and May in its roughest patch since the start of a rally last year that has changed the playing field for business and financial investors worldwide.

It fell as much as 9 percent against the euro between April 13 and May 15 but has recovered more than half of that loss in the past week after U.S. Federal Reserve chief Janet Yellen affirmed her willingness to raise interest rates this year.

"The dollar remains a buy, even if it is not so wise to buy it against the euro," analysts from French bank Societe Generale said in a note to clients.

"If we get some kind of Greek deal ... it will not get rid of long-term concerns, but it would trigger a bounce in the euro. So we would rather be long of the dollar against the yen, pound and Aussie and Canadian dollars."

On Friday, the dollar rose 0.05 percent on the day against a basket of currencies <.DXY> and 0.2 percent lower against the euro at $1.0966 .

Earlier, Asian shares had risen as Chinese shares edged back from the previous day's dizzying plunge, though regional investors remained fearful that the world's best performing equity market was at the beginning of a major correction.

Buoyed by China, Australia <.AXJO> and South Korea <.KS11??, the MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> climbed 0.5 percent, but looked set to slip 1.5 percent on the week. It has gained nearly 7 percent so far this year.

Japan's Nikkei <.N225> inched up to a 15-year high and was on track for an 11-day winning streak and a fifth straight month of gains amid hopes for better shareholder returns. [.T]

The Shanghai Composite Index <.SSEC> ended less than 0.2 percent lower after a volatile day's trading.

It fell nearly 7 percent on Thursday, when investors dumped stocks after more brokers tightened margin trading requirements and the central bank drained money to reduce flush liquidity in the financial system. The index still stands on top of a 43 percent gain so far this year.

"The correction is not yet over," said David Dai, Shanghai-based investment director at Nanhai Fund Management Co Ltd.

"Yesterday's slump was too rapid, so many investors didn't have time to flee. Many are still seeking an exit. The market has risen too much, and too fast, so the confluence of bad news is causing panic selling."

Euro zone bond markets were focused on fallout from an advance extract of an interview in a German newspaper quoting IMF chief Christine Lagarde as saying a Greek exit from the euro zone was a possibility.

The Frankfurter Allgemeine Zeitung changed the quote in versions of the interview run in print and online editions on Friday to read: ?Nobody would wish a Grexit on the Europeans.?

The paper said the IMF approved the interview in its first version, but did not explain why it changed the ?Greek exit? quote in later versions.

"Quite a lot of discord over Greece has materialized overnight, with there generally being huge scepticism over a deal being done this weekend," said Mizuho strategist Peter Chatwell.

(Additional reporting by Pete Sweeney in Shanghai; editing by John Stonestreet)

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