Moody's Italy cut weighs on euro

Moody's cut Italy's credit rating to just two notches above junk status and warned more downgrades could come, just hours before the debt-laden nation issues a three-year bond. Italian government bond yields jumped 13 basis points at the open to 6.04 percent.

The news piled more pressure on the euro, which was down to $1.2190, not far off a two-year low of $1.2166 hit on trading platform EBS the previous day.

It also boosted appetite for safe-haven German Bunds, with bund futures ticking up 17 ticks to 145.01 compared with 144.84 at Thursday's settlement. Italian BTP futures slipped 88 ticks to 98.99.

"(The downgrade) is probably going to be a factor weighing on Italian bond yields and weighing on European fears," said Shane Oliver, chief economist at AMP Capital Markets.

The main world equity index rose 0.25 percent, recovering some of the previous session's 1 percent losses after data showed China's economy grew 7.6 percent in the second 2012 quarter.

While this is the slowest pace of growth in three years, the data soothes worries of a drastic hit to the world's No. 2 economy.

The Chinese data boosted the Australian dollar, which benefits from growth in its biggest export market while oil prices rose, holding above $101 a barrel.

European shares opened stronger with the FTSE Euroofirst 300 index 0.2 percent. Italy's FTSE MIB also firmed 0.2 percent.

Focus is shifting now to the big U.S. corporate results for the second quarter, with JP Morgan, Wells Fargo and Google due to report earnings later on Friday.

(Reporting by Ingrid Melander and Sujata Rao; editing by Philippa Fletcher)