LONDON – A spike in COVID-19 cases in Europe stymied the global equity markets rally on Friday with stocks struggling to cling to recent record highs and the euro looking on track for a second straight week of losses.

While US stocks closed at a record high on Thursday, aided by consumer discretionary and tech sectors, the optimism faded noticeably in the Asian session with the regional index set to close down 1 percent for the week.

European stock indices edged higher in early London trading on Friday though sentiment was more cautious with a European stock market volatility gauge holding near two-week highs.

"Markets are consolidating after heady gains in the dollar and front-end bond yields in recent weeks and investors will turn their focus to the preliminary PMI data next week," said Kenneth Broux, an FX strategist at Societe Generale in London.

"In the case of the eurozone, instead of inflation we are going to pay a bit more attention on whether the new COVID restrictions are already having an impact on services activity."

High frequency data in recent weeks has shown that economic activity is struggling as inflation has surged though the deceleration in economic activity in Europe is more than in the United States with a surge in COVID-19 cases weighing on sentiment.

Europe has again become the center of the pandemic, prompting some countries including Germany and Austria to reintroduce restrictions in the run-up to Christmas and causing debate over whether vaccines alone are enough to tame COVID-19. 

Daily new cases as a share of the population are now higher than in the United States, are rapidly catching up with the UK, and are close to the numbers in Eastern Europe, Capital Economics said.

MSCI's broadest gauge of world stocks held less than 0.5 percent below a record high hit earlier this month though Asia-Pacific shares look set for a weekly decline of 1 percent.

Sentiment was a downbeat in currency markets with the dollar standing tall versus its major rivals, up 0.3 percent on the day while the euro held near six-year lows versus the Swiss franc.

The single currency has been on the receiving end this week after policymakers pushed back on market expectations the European Central Bank will raise interest rates to quash rising inflation. The euro is down more than 1 percent this week versus the US dollar, a second consecutively weekly drop.

US benchmark Treasury yields were steady below the 1.60 percent levels with investors waiting for news on the next Federal Reserve chief announcement due in the coming days.

Turkey's lira lingered near Thursday's record low. The lira weakened about 6 percent after the central bank, under pressure from President Tayyip Erdogan, cut rates again to take the benchmark to 15 percent even as inflation closes in on 20 percent.

Oil prices were continued their recent volatility. US crude rose 0.96 percent to $79.77 a barrel. Brent crude rose 0.97 percent to $82.03 per barrel.

Elsewehere, bitcoin is headed for its worst week in six months — 20 percent below recent record highs.