Nerves dominate before U.S. retail numbers

LONDON (Reuters) - The dollar was set for a second week of gains on Friday while stock markets fell ahead of a handful of major U.S. and Chinese data releases which may do little to settle growing nerves over the outlook for the world's two biggest economies.

A poor performance on Wall Street on Thursday, driven by another big drop in Apple shares, seeped into Asian and European markets, down around half a percent across the board.

Doubts over growth in Europe, the financial stability of China and the U.S. Federal Reserve's ability to raise interest rates have dominated the past month and U.S. retail sales and Chinese releases over the next 24 hours will be important new pieces of the picture.

The dollar - whose strength over the past three years is broadly a reflection of how the United States is outpacing its peers - hit a two-week high against a basket of currencies on Friday, posting its best fortnightly performance since February.

"Optimism from earlier this year that policy stimulus in China would provide more support for economic growth in Asia appears to be fading," said Lee Hardman, a currency analyst with Bank of Tokyo-Mitsubishi in London.

"In these circumstances, commodity-related and emerging market currencies are coming back under downward pressure against the dollar."

Data at the end of the Chinese trading day showed banks extended just 555.6 billion yuan ($85.22 billion) in net new yuan loans in April, well below analysts' expectations and less than half the 1,370 billion yuan reported in March.

A strong reading of first quarter growth from Germany and a handful of other euro zone economies did little to brighten the mood.

While growth in Germany doubled, Berlin's economy ministry warned it would slow in the second quarter and economists said weaker exports to slowing emerging markets like China would eventually begin to tell on demand.

After a poorer set of jobs numbers last week there are also more doubts over how robust the U.S. economy will be going forward.

Two Fed policymakers - Eric Rosengren and Esther George - both sounded optimistic on the chances of raising interest rates later this year in comments late on Thursday. But U.S. interest rate markets showed little sign of wanting to believe them: pricing shows the chances of rates being unmoved by the end of this year have risen to around 40 percent.

Still, both are voters on the U.S. central bank's policy committee this year and the comments by Boston Fed President Rosengren, in the past a supporter of keeping rates low for longer, point to the growing pressure within the bank for a hike this year.

Asian shares fell after the rocky performance on Wall Street, MSCI's broadest index of Asia-Pacific shares outside Japan down 1.1 percent, and on track for its third straight weekly decline.

The Nikkei closed down 1.4 percent while Chinese shares fell by 0.3-0.5 percent. Chinese industrial output, investment and retail sales data are all due on Saturday.

(Editing by Alison Williams)