* Dollar near 2-year low vs euro, 2-week low vs yen
* European shares dip from 5-yr highs as rally fades
* Tokyo's Nikkei down 2.3 pct as yen rises, China weighs
* Aussie, kiwi dollars weak, Indonesia's rupiah surges
By Marc Jones
LONDON, Oct 25 (Reuters) - The dollar struggled to escapetwo-year lows against the euro on Friday as expectations ofprolonged U.S. stimulus left it facing its sixth weekly fall inseven and world shares close to five-year highs.
Soft U.S. jobs and other data this week has bolstered theview that the Federal Reserve will not tamper with its hugebond-buying programme until well into next year, triggering adrop in the dollar and lifting both shares and bonds.
There was an interruption on Friday though as a surprise dipin Germany's Ifo business index and soft eurozone lending data sent another reminder of thebloc's fragility a day after a disappointing PMI reading.
Having hit a two-year high of $1.3833 overnight, the euro backed off to $1.3795 as European shares and southerneuro zone government bonds also saw some selling.
"I think it is fairly clear the euro-dollar is pretty wellbid but we did have the weaker PMI data yesterday too and itserves as a reminder that the ECB is likely to remain dovish,"said Jane Foley, FX strategist for Rabobank in London.
"The softer data as well as the possibility for headlinesfrom the ECB's AQR (Asset Quality Review of banks) could seepeople really question whether euro has the momentum to hit$1.40," she added.
Given worries about tighter cash markets in China and theimpact of the strong euro on company earnings, European shareshad already been subdued before the data, and an acceleration inBritish third quarter GDP did little to change the picture.
Underscoring the concerns about the strong euro, Frenchinsurer AXA and carmaker Renault blamed itfor a drop in sales, while electrical goods maker Schneider cited it as it lowered its full-year forecasts.
There was little sign of sympathy from the ECB in Frankfurtthough.
"In nominal and real effective terms, which is what countsmost, we are in a range we have seen in the last 10 years,"Joerg Asmussen, one of its top policymakers, told Il Sole 24Ore.
It was a choppy day though, and the FTSEurofirst300 was almost back to where it started the day ahead of the WallStreet restart with U.S. stock futures pointing toa steady open.
U.S. data later includes the September durablegoods report at 1230 GMT and the closely-watched Michigansentiment index at 1355 GMT, the first since the disruption fromthis month's budget tussle and government shutdown inWashington.
For MSCI's world share index, which tracks45 countries, the uncertainty meant a third straight weekly risewas in the balance, though with it at a five-year high andstimulus still in abundance there were few concerns.
"We think the trend is still upwards and we have marketsrising next year," said Robert Parkes and equity strategist atHSBC. "I think what is critical is that earnings growth turnspositive."
As the dollar clambered off its lows, sterling failed to keep hold of gains despite data showing UK growthaccelerated to 0.8 percent in the third quarter from 0.7 in Q2.
In Asia, the Indonesian rupiah gave back almost halfof its early 2 percent gains while the Aussie dollar was firmly on the back foot at a near session low of $0.9594.
MSCI's broadest index of Asia-Pacific shares outside Japan had eased 0.35 percent, reversing earlier slightgains as rising Chinese money market rates continued toovershadow signs of a pick-up in manufacturing.
Shanghai shares hit their lowest levels in a month,while Tokyo's stock market suffered its first weekly drop inthree and high-flying Korean stocks edged lower.
The dollar was also pushing up against the yen as U.S.trading started, standing at 97.37 compared with atwo-week low of 97.15 yen hit on Wednesday.
The dollar index, which tracks a basket of majorcurrencies, was also in positive territory at 79.277 whilebenchmark U.S. Treasury yields were steady.
After what has been a choppy week for commodities markets,U.S. crude prices held above their recent 3-1/2 month lowat $97 and copper slid towards its third weekly drop infour.
Gold meanwhile paused at $1,337 an ounce on its wayto a second weekly gain. Bullion tends to do well fromsuper-easy Fed money as it boosts its demand as an inflationhedge.
"We are certainly seeing some support this week, which ismainly due to external factors like the weakness of the dollarand dropping yields as the market tries to assess whether wewill have tapering in coming months or not," said Credit Suisseanalyst Karim Cherif.
- Europe News