By Richard Hubbard
LONDON (Reuters) - The yen sank to a four-year low against the dollar and a three-year trough against the euro on Friday after data showed Japanese investors had begun buying foreign bonds
Buoyant U.S. jobs data a day earlier also eased fears of a slowdown in the world's largest economy.
The yen's fall to a low of 101.20 to the dollar came as finance ministers and central bankers of the G7 countries gathered for a two-day meeting near London, with currency movements likely to be one of the main topics on the agenda.
The currency was initially spurred past the key 100 yen to the dollar level when weekly U.S. jobless claims fell to five-year low on Thursday, data which dented demand for Treasury securities, sending the 10-year note yield to a one-month high of about 1.844 percent.
It then was given a push when Japan's Ministry of Finance confirmed on Friday that domestic investors had turned net buyers of foreign bonds in the last two weeks.
The data confirmed widespread expectations that the Bank of Japan's aggressive stimulus plans would result in a massive flight of money out of the country in a search for higher yielding investments.
German bonds followed Treasuries lower on Friday with Bund futures touching a low of 145.20, down 69 ticks on the day.
The U.S. employment growth has raised hopes that evidence of a slowdown in other economic data will turn out to be more of a soft patch rather than an end to the current recovery.
"I think the U.S. will be once again play a dominant role (in the global economy) and that is the best investment," said Neil Petroff, Chief Investment Officer of the Ontario Teachers Pension Plan attending a conference in London.
The U.S. Federal Reserve Chairman Ben Bernanke could even to leave the door open to further stimulus in a 1330 GMT speech after conflicting comments about the effectiveness of the programme from some Fed officials this week.
The better economic outlook, amid efforts by all the world's major central banks to stimulate activity, saw European equities power on to fresh five year highs, drawing added comfort from some solid corporate earnings reports.
The FTSEurofirst 300 index was up 0.6 percent at 1,236.48 points in early trade with London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were up as much as 0.9 percent.
Britain's main index was on course for its seventh straight daily gain as recent data on the UK economy shows it recovery gathered pace in the three months to April.
As the yen fell Japanese shares climbed to a 5-1/2 year high with exporters and financials leading the charge on prospects of enhanced corporate earnings. The benchmark Nikkei share average closed up 2.9 percent to 14,607.54.
The index is up 6.4 percent for the week its biggest weekly gain since December 2009 when it jumped 10.4 percent.
However, MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.9 percent, after climbing to its highest since July 2011 on Thursday. For the week, the index is set for a gain of 0.8 percent and is back to levels last seen in early January 2008.
Asian markets were being held back by persistent doubts over the strength of the Chinese economy, which has also weighed on commodity prices. In the first quarter, China's grew by a less than forecast 7.7 percent, frustrating investors who had hoped for a strong rebound of at least 8 percent
The doubts over demand from the world's second largest economy also saw Brent crude trade under $104 a barrel on Friday, down 57 cents, while U.S. crude eased 68 cents to $95.86 a barrel.
(Editing by Jeremy Gaunt)